Risk management for binary options

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Trading binary options is inherently risky. That is to say, you can experience large swings, both upwards and downwards. On a single option, you can make 80-90% profit, but you can also lose the invested amount. It is therefore important to protect yourself against the risk of trading. In this article, we explain three principles for risk management when trading in binary options. With these principles, you can protect your investment and avoid big losses.

The reason risk management is paramount in binary options trading is simple. As a trader in binary options your most important tool is your money. You use this money to buy binary options, and thus make more money. Should you lose all your money, you can no longer trade, and therefore earn no more money. That then marks the end of your career as an options trader. Therefore you must avoid losing your capital, and make sure you always have enough left over to continue to trade.

Three principles to protect your capital

First, you do that by choosing the options you buy. You want to buy options for which the probability for pay out in returns is large. For example, you can determine this by using technical analysis. But you can also follow the news, and pick binary options on shares whose values are expected to rise (or fall). Remember: with binary options, it doesn't matter how much a stock rises or falls. If the rate is 1 pence higher (or lower) than the strike price, you receive the complete profit on your investment.

Secondly, you control your risk by never risking your entire capital at once. If, for instance, you have GBP 500 on your trading account with a broker, then never buy one option one option for 500 pounds. Instead, spread your risk twenty times at 25 pounds on different options. With this, it is obviously inevitable that on some of those options will incur losses, which implies that you will lose the invested 25 pounds. However, the other options that make 80-90% profit each, make up (cover) for the losing options. So, at the end of the day, you still make a profit anyway, despite the losses that you may have incurred in between. Do this day in, day out, and you will notice at the end of the month that you have netted a hefty profit.

Thirdly, it is important to keep your emotions in check and take decisions with your head, not your heart. If you have a bad day, if you're not feeling well, if you're drunk, or if you've just experienced something shocking, then do not trade. The options market will still be there tomorrow, and there is no rush. Wait until you feel good and are completely sharp to make smart trading decisions.

The most important rule of risk management

Finally, and we cannot emphasize this enough, never ever trade with money that you cannot afford to lose! NEVER!!! If the money at stake is indispensable for you, it puts you under pressure and you make emotional decisions; you buy the wrong options, risking too much money on one option, and eventually lose everything. There have been many aspiring options traders who never made it to the top because they put too much at stake. Do not make the same mistake and only trade with money you can afford to lose.

If you stick to these principles of risk management to protect yourself against losses, you can maximise your profits with binary option trading.

Become a binary option trader

You too can make money with binary options

Are you already making a profit on the options market? You can earn a lot of money in a short time with binary options. And it's easy. In this video you will learn in just a few minutes how binary options trading works.

Do you want to take advantage of the opportunities that binary options offer? Then open an account with binary options broker AnyOption. Anyoption is one of the longest existing option brokers, and is known for its professionalism, excellent software, and reliability (read the review).

Novice traders can also take advantage of the AnyOption Academy, where you can learn even more about how to improve your trading, through instructional videos and articles.

Start trading binary options now

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Disclaimer

Trading in binary options is inherently risky. With binary option trading one can make a lot of money in a short period of time or lose a lot of money. The visitor to this website is deemed to be aware that he can lose his investment completely. Due to the risky nature of this financial product, it is not suitable for everyone. Aspiring traders who are unsure whether binary options trading is suitable for them are advised to solicit the advice of an independent financial consultant.

BinXC, The Binary Exchange, is an informational website about online trading in binary options / digital options / all-or-nothing options. We do our best to give accurate and reliable information, but we do not provide investment advice or financial advice. All decisions made by the visitor based on the contents of this website are at the visitor’s own risk and the sole responsibility of the visitor. Neither BinXC nor its owner(s) and/or associate(s) can be held liable for the outcome of such decisions.

This website is aimed at the Australian and New-Zealand market, and does not accept visitors from the United States of America. Most of the brokers mentioned on this website do not accept U.S. clients. The contents of this website are not valid for the U.S. If you are a U.S. citizen or are in any other way subject to U.S. law, you should not use this website.