How to Use Risk Management in Binary Options Trading

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7 Binary Options

The Basic Tools for Successful Binary Trading

Binary options are complex, exotic trade options, but these are particularly simple to utilize and understand the way they work. The most familiar type of binary option it the high-low option and it’s relatively simple to comprehend. This technique is also referred to as the fixed-return option and provides access to commodities and foreign exchange, indices and stocks.

Trading with binary options is easy, and you do not need any previous experience. Below are some basic guidelines that we have compiled to help you start trading in a few minutes.

  1. To be a successful binary options trader, you need to use more than one broker. Choose one or more from our compiled list of brokers.
  2. Register with your chosen trading platform and deposit money to start trading. The minimum deposit for some trading platforms or binary options robots is only $ 100.
  3. Select the asset to trade. Trading platforms have assets such as currencies, indices, commodities, and stocks. You can choose to trade in currencies, the popular one being EUR/USD.
  4. Decide on the amount to invest. When investing in an asset, you will see the payout or the returns for the asset, which can go up to 91%. Make your prediction on the movement of the price of the asset. If you predict the price of the asset to rise, select Call (up). If your prediction is that the price will fall, select Put (Down).
  5. When the trading closes after the given time, for example after 60 seconds, if it is a 60 seconds investment and you have made the correct prediction, then you win. An investment of $ 100 with a 90% payout means that you will have made 90 dollars in a few minutes.

Money management for binary options trading

Risk management is what defines you as a trader, rather than a gambler, and sensible money management is its most important ingredient. Without money management, your career as a binary options trader could prove very short-lived.

In this lesson we will outline the key principles of money management and why it is so important for binary options traders in particular.

We will help you work out how much of your available trading capital or deposit you should use in any one position. We will also introduce you to other strategies that will help you control losses and maximise your long-term returns, depending on whether you favour low-, medium- or high-risk strategies.

The importance of money management

While gambling involves exposing yourself to high risks in exchange for the low probability of a large payout, trading involves taking calculated risks that will result in smaller but more regular profits while controlling the size of any losses when they inevitably occur.

Money management is the least ‘sexy’ element of binary options trading, with some novice traders preferring to focus on studying new trading strategies and technical indicators than dedicating time to this discipline. Unfortunately, many learn the hard way how vital money management really is. The ‘all or nothing’ nature of binary options trading makes money management especially important.

No matter how good you are at predicting price moves, no trader gets its right every time. The trick with binary options trading is to ensure that when losses do occur, they are small enough that you still have enough money in your trading account to live another day – and hopefully win back your money.

Only risking a small portion of your deposit on any one trade will also help keep you clear-headed and calm – essential for good decision-making. Nothing clouds a trader’s judgement like greed or desperation, so try and never put yourself in a position where the outcome of a trade is make or break.

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The Kelly criterion

One money-management strategy that is popular with binary options traders is the Kelly criterion, or Kelly system – a mathematical formula designed to minimise risk and maximise profits. Traders use the Kelly criterion to work out – based on the probability of a trade making or losing them money – what proportion of their trading capital they should place on individual trades.

In the case of binary options that have just two possible outcomes, the Kelly criterion typically dictates that traders use just 1/19th of their available capital on any one trade. For purposes of ease, most traders round this down to 1/20th, or 5%. For contracts offering a 70% payout, a winning trade would offer you a 3.5% return on a 5% risk.

If, for example, you have £1,000 in your trading account, the optimum amount of money you should invest in any single binary options contract is £50.

While this may seem disappointingly small to ambitious new traders, it means you would have to lose 20 times in a row to wipe out your entire trading account.

Other money management strategies

There are a number of other techniques that binary options traders employ to limit their losses to a manageable level, depending on whether they have a high, medium or low appetite for risk.

Cap the number of winning or losing trades

This technique involves placing a limit on the number of winning or losing trades you make in any one day. If, for example, you have a low appetite for risk, you could commit to stop trading after 10 wins or 4 losses, regardless of how attractive market conditions may appear to be or how keen you are to recoup losses.

Binary options traders with a medium risk appetite could tweak this by limiting their trading to 30 winning or 10 losing trades, whichever is reached soonest, while high-risk traders who want to make a fast profit and can afford to lose their trading account could decide to stop at 100 wins or 30 losses.

Cap the amount of money won or lost

Some binary options traders follow a similar approach but instead of limiting their number of winning or losing trades, they place a cap on the amount of money they are prepared to win or lose in one day. These amounts will vary greatly depending on how much trading capital you have as well as your risk appetite.

For example, binary options traders with a medium risk appetite could decide to stop trading once they have either won £75 or lost £25. Very low-risk traders might prefer smaller limits – for example a maximum daily profit of £20 and maximum daily loss of £10. High-risk traders might choose to place no upper limit on their profits but stop trading whenever they have lost £50 in any one trading session.

Cap the number of total trades

Other traders simply decide to limit the number of trades they make each day – for example 10 trades for a low risk appetite, 50 for a medium risk appetite and 150 for a high risk appetite – regardless of whether they win or lose.

All three of these techniques can help create a useful psychological safeguard against reckless or desperate trading – a real danger for new binary options traders in particular.

Cap the percentage of losing trades

Another technique that has a similar purpose is to commit in advance to stop trading as soon as a certain percentage of your trades are unsuccessful.

For example, a binary options trader with a low risk appetite could decide to stop trading once 8% of his trades make a loss. This could be increased to 15% and 25% for traders with medium and high risk appetites, respectively.

This technique is more flexible in that you could in theory make countless trades in one day if you are on a winning streak. For the same reason, however, it can expose you to bigger losses.

Summary

So far you have learned that:

  • money management in trading can help you achieve smaller but more consistent gains
  • binary option traders invented various easy-to-follow techniques to keep their capital safe
  • Kelly criterion is a mathematically calculated figure that shows you the maximum amount you can reasonably risk on any one trade
  • you can preserve your trading capital by setting certain limits, such as: the number of winning or losing trades, the money won or lost or the total number of trades you take in a trading session
  • based on your personal risk tolerance you can make up your own rules on how many loser or how much of a monetary loss are you willing to take in a day

Binary Options Minimum Risk High Profit Strategies

This is invincible… Its hard to lose with this strategy…

I am going to show you how to double your money every 10 days with MINIMUM RISK

Sounds too good to be true….

But if I rephrase the above sentence like “I am going to show you how to make 10% profit everyday”.

If you know about binary options and its potential, you’ll probably say “What the crap? I can make 70% profit in a single half hour trade in binary options”

If you can really make that kind of profit consistently, this is not for you.

But if you have been excited about making big money from binary options but have only faced the losses till now, your destiny is about to change.

The keyword here is “MINIMUM RISK”.

Every binary option product in the market will say “$500 in 60 seconds”, “$1500 in one day”, “$1000 in an hour”, but no one talks about the long term consistent money.

This is because no one can guarantee you a consistent profit. The reason is the risk associated with the binary options. This is where my strategy differs from the rest as it is designed for long term and consistent profits.

These days, everyone says that binary options is an easy form of trading… anyone can trade in binary options… you dont need to know the market basics to profit in binary options… I beg to differ.

Without the proper know how of the market and trading, you may win occasionally, but overall you will only face losses. Binary Options is not simply guessing, whether the market will be up or down after certain time. There are important questions which need to be asked and analyzed…

  • Up or down.
  • What’s the trend.
  • Are there chances of trend reversal.
  • What should be the expiry time.

You cannot just guess all these answers and expect to get all of them right at least 60% of the time. So this requires you to understand the market if you really have to profit consistently from binary options. And thus comes a huge risk for the trading virgins out there.

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So what should you expect from my strategy…

I am not going to teach you about the market basics and all that technical crap… although my strategy requires you to understand some of the basics.. some very minor ones, which you may already know.

I am going to show you a strategy which keeps the simplicity of binary options for newbies and simply reduces the chances of losses and hence reduces the risk. With my strategy, the probability of getting all the above questions answered correctly increases and you profit from most of your trades.

Let me get you a little more excited by showing you the money at stake. If you start from the initial investment of $100, here are the profit levels that you will reach:

  • After 10 days – $200
  • After 20 days – $400
  • After 30 days – $800
  • After 40 days – $1600
  • After 50 days – $3200
  • After 60 days – $6400

If you consider 20 trading days in a month, you will have $6400 after 3 months. And once you reach 5000 mark, you just have to double it every 10 days to make a handsome $10000 easily with very little work and with MINIMUM RISK.

All you will ever invest is $100. In fact, you can invest as little as $5 and keep doubling it every 10 days with my strategy.

So allow me to present to you my goldmine, my secret system, my strategy that will double your money every 10 days guaranteed.

Firstly, in order to use my system, you will have to open an account with binary.com. Binary.com, a company of Regent Markets, is a very old and highly respectable broker. It is important to open an account with Binary.com as they have a unique feature which allows you to select your own barrier and expiry time when trading Touch options and High/Low Options. The returns are adjusted based on the current market value, the selected barrier and the expiry time. This feature is not offered by any other broker and this is exactly the feature that we require for my strategy.

Another great feature offered by Binary.com is that they offer you to create a demo account without having to invest even a single penny. Once you are good to go, you can create a real account and deposit the real money. The minimum deposit amount is just 5$ and the minimum trade investment is just 1$.

Binary.com offer 4 types of trades:

  1. Rise/Fall: The usual binary option trades where you have to predict whether the market will be up or down from the current level at the expiry time.
  2. High/Low: This is similar to Rise/Fall Trades except you yourself get to select the barrier instead of the default current level. The return profit percentage is adjusted according to the selected barrier and expiry time.
  3. Touch/No Touch: Here, you have to predict whether the market will touch or not touch the selected barrier before the expiry time. Again, you yourself get to select the barrier. The return profit percentage is adjusted according to the selected barrier and expiry time.
  4. In/Out: This has 2 variations:
  • Stays Between/Goes Outside: Predict whether the market will remain between or go outside the selected Low and High Barriers before the expiry time.
  • End Between/Outside: Predict whether the market will be between or outside the selected Low and High Barriers at the expiry time.

For my strategy, I will be concentrating on Touch Options.

Binary.com has six type of assets – Forex, Stocks, Sectors, Commodities, Indices and Random Indices. Random Indices are their own version of indices based on randomly generated numbers. Although, they can be profitable and they are available 24 X 7, they are highly unpredictable and I don’t really prefer to use them for my strategy.

Touch Options are not available for Stocks and Sectors. For Indices, the minimum expiry time is 7 days, so not useful for my strategy.

For Commodities, the minimum expiry time for Touch options is 15 minutes. For Forex, the minimum expiry time varies from 15 minutes for some Forex pairs to 1 day for others. Expiry time of 1 day means that if I place a trade today, it will expire tomorrow at 23:59:59 GMT.

This is the reason why I prefer to trade with Forex because my strategy concentrates on daily targets.

Another important feature of Binary.com is the ability to Sell the trade prematurely. So if I have made a trade on EUR/USD with expiry time of 1 day, I will be able to Sell it before today end i.e. 23:59:59 GMT. The rate at which the trade is sold is displayed and keeps on changing according to the current state of the trade.

Learn the concept of matching trades… Click here to earn big from binary options without risk

With all that information, let me reveal my strategy.

As I said before my strategy works on daily target of 10%. If you have more time, you can go for 20% and if you want to be more cautious, you can go for 5%. (Read my last sentence very carefully, I’ll come back to it later)

So here’s my strategy for Touch options.

Touch Options

Go to Trade -> Touch/No Touch tab

You can select the market and it will show you the Current spot of that market. Then you can input a barrier and duration for which you want to place a trade. The payout refers to the total amount that you will receive along with the profit if you win the trade.

You can also see 2 trade options on the right. In the above example, in order to get a payout of 100$, you will have to buy the Touch trade at 61$ i.e. your trade investment. That means if EUR/USD touches 1.23746 before 1 day, you will make a net profit of 39$ i.e. 63.9% profit of your invested trade amount of 61$.

As you make the barrier closer to the current spot, the Return percentage for Touch option decreases. For No Touch options it goes over 500%, but that is not important to us.

You can also see the trend graph at the bottom of the page. You can select ticks, minutes, hours or days trend for the selected market. The below graph shows the hourly trend. You also have the option to see different chart types like line chart, dotted or as shown below candlestick chart.

Looking at the graph, it is easy to predict that it will touch the barrier of 1.2313 in not more than an hour or two from now. So if you invest 100$ in the Touch option right now, you will make around 5$ profit, absolutely risk free.

How to place and monitor your trade

Placing the trade in Binary.com is easy.

Once you have selected the market to trade on and the target barrier, just go to Trade –> Forex –> Touch/No Touch tab, select the market, input the barrier and duration (in our case, 1 day), select the Payout that you want from the trade (Investment + Profit). You will get two options on the right – one for buying touch option and other for No Touch option. Click on “PURCHASE” button of Touch option and that’s it.
Once you have made the trade, you can see it in your Portfolio.

You will see the Trade Details, your Purchase Price and the Indicative Price of your trade. Indicative Price is decided by the current state of your trade i.e. the time left and the closeness to the barrier among other factors.

If you click on View, you can see more details about your trade and can also get the “Sell At Market” option.

If you have made the trade of 1 day, the Sell button will remain active till the end of current day i.e. in above example, I made the trade on 13th February, so the Sell button will remain active till February 13, 23:59:59 GMT. Note that the trade of 1 day made on February 13 will expire on February 14 at 23:59:59 GMT.

For our strategy, we will never have to use the Sell button, but it is just nice to know that we have the option of selling our trade prematurely.

Once your Touch trade is successful, you can see the profit details in your Profit Table.

Also notice that the Sale Price is the Payout that we had selected. So that will make you a profit of $3.73, absolutely risk free.

The above trade took about 50 minutes to reach the target barrier. Normally, these trades may take about 2-3 hours to complete.

This is why I had said earlier that if you have more time, you can aim for a daily target of 20% as it will take 3-4 trades to earn 20% profit from such trades. Also, I had said that if you are more cautious, you can select just one perfect trade a day and earn 5-10% daily.

Making it INVINCIBLE

Let me take an example of EUR/USD. Go to investing.com. Investing.com is a definitive source for tools and information relating to the financial markets such as real-time quotes and streaming charts, up-to-date financial news, technical analysis, brokers directory & listings, an economic calendar, and tools & calculators. The site provides in-depth information on Currencies, Indices & Stocks, Futures and Options, Commodities, and Rates & Bonds.

Go to investing.com. You can see the complete technical analysis of all the major forex currency pairs on investing.com. Just select the currency pair in which you are looking to trade in.

Under the Technical tab, you can see the various Support and Resistance points for the currency for different time scales from 5 minutes to 1 day. Also, the overall Summary is given from “Strong Sell” to “Strong Buy”. You dont need to understand the technical details of Support and Resistance points for my strategy. Just need to know that all these figures together provide you the guarantee of a successful trade, but this is not important for us right now.

In the General tab, select Historical Data. Here, you can see the Open point, Closing point and High and Low values of EUR/USD currency pair for each day of the selected duration.

Select the data for duration of over 6 months and copy it in a spreadsheet. Now compare the Open time for each day with the highest point of the day. Do the same with the Lowest point of the day. The data that you get also include the Saturdays, so remove the Saturdays from the list as there is not much movement on Saturdays.

Now if you’ll see the two calculated values i.e. (Highest – Open Point) and (Open Point – Lowest Point) for each day, you’ll see that for about 75% of the days both the values are above 0.001 i.e. the market moved 10 pips from the Open point in both directions.

What it means is if you make a trade right at the start of the day i.e. with Open point as the current point, there is 75% chance that you will win the trade even if you have made the trade with your eyes closed.

Now, if you look for the days when the market has not moved more than 10 pips in either direction, you won’t find any such day.

So we are left with the days when the market has moved very less i.e. less than 10 pips in one direction. For these days, just looking at the trend line will tell you about the trading direction. So this makes your trade 100% secure if you make a trade close to the Opening time of the day i.e. 00:00 GMT.

I haven’t touched any technical aspects of Binary Options till now. I haven’t asked you to do any sort of data analysis before placing a trade, apart from just looking at the trend. I have just introduced you to investing.com and given you the hint that I am going to use the data from investing.com for my strategy.

But still, using only the knowledge that you have till now, you can start trading. Just open an account with binary.com and make a trade on EUR/USD using the above mentioned guidelines and timelines. Just give it a try for 5 days. You can use a virtual money account for now.

Please do let me know whether you succeeded or failed.

Covering up all bases

In order to reduce the maximum possible risk, some level of analysis is required before placing a trade. And there comes my MAGIC STEP.

THE MAGIC STEP

There are 2 things which you should consider when choosing your trade:

  1. A growing trend
  2. A strong indicator

If you kept waiting for some hard hitting trend to make a trade you’ll not be able to make any profit. You don’t even need a strong trend for this strategy. You just need a subtle trend.

More than a strong trend, you need a strong indicator. Indicators are available on investing.com. As I mentioned before, the Support and Resistance points, the Strong Sell to Strong Buy indicators, all these figures together provide you the guarantee of a successful trade.

So all the data, facts and figures are right in front of you. You just need to put it together to achieve profits every time you trade. For the people, who are scared of so many numbers, my MAGIC STEP is just for you. It does not involve any in-depth analysis of all the numbers and facts and figures. It just involves certain rules which can be understood with just one look at the screenshot I had given before.

My MAGIC STEP makes it all so easy for you. There is no technical expertise required in order to understand my MAGIC STEP, even a complete novice can understand it. Its just a set of rules that you should follow before placing a trade.

…and it comes to you for just $10.

This magic step really makes each and every trade of yours invincible. I guarantee, that you will be able to recover your $10 in 1 day.

Although my strategy itself is very low risk, but this step removes even further elements of risk. This Complete Money Making Guide educates you about:

  • The MAGIC STEP – a set of rules that you should follow before placing any trade
  • How to find the target point of your Touch Option trade
  • How to monitor your trade in detail
  • A strategy that makes your trade end successfully and quickly
  • Making it invincible strategy in detail

However, you can easily and safely use my above described strategy even if you decide not to buy my Binary Options Strategy – The Complete Money Making Guide.

Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Broker 2020!
    Perfect For Beginners!
    Free Trading Education!
    Free Demo Account!
    Get Your Sign-up Bonus Now!

  • Binomo
    Binomo

    Good Broker For Experienced Traders!

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