Friday, July 26th, 2013 by James Franklen
Even though binary option trading is less risky compared to vanilla options, it does not mean that it is totally risk free. Binary option trading is still risky, because you are forecasting on probability which is never perfect. In addition, part of the probability says that you may lose.
Managing risk in binary options trading can be very simple and difficult at the same time. This is because risk management in binary options trading depends very much on you. If you have the right knowledge and approach, you can effectively manage your risk. If you do not have that or don’t bother to grope in to it, then market will thrash you.
Here are certain tips to help you with risk management in binary options trading:
- The first thing you can do is choose a platform, which gives good proportion to your side of binary trade. For example, you should choose a platform that is ready to give you 15% of your money in “out-of-the-money” trades and 70% payout in “in-the-money” trades, compared to a platform that pays you nothing when you are out-of-the-money and gives you 80% when you are in-the-money. In the first instance you have to be correct 65% of the times, in second instance, you have to be correct about your trade 80% of the times.
- The saying that, “don’t put all your eggs in the same basket” goes well with binary options trading. Here, this means that you should not trade with large amounts, say $500 immediately. Start trading small and simple. Go for $25, $50 or $100 trades initially. Once you get the hang of it, and accumulate enough capital, then you should go about trading with a little larger amount. So always, manage your trade capital keeping in view the basic capital you have.
- Another very important thing you can do to make your risk lower is to follow a double profit strategy. Yes, that’s correct, a double profit strategy to minimize your risk. This can be done when an asset’s trend is fairly neutral within the past few hours, say 1.5 hours. When this happens, buy a call option at the lowest point and a put option at the highest point. If the price remains between these two points, you make profit on both trades. If price moves above or below these two points, you will still be making profit on one trade losing 85% on the other trade. This is an effective risk management technique.
These are some of the popular and easier risk minimizing techniques followed by many options traders. You can also follow these to the letter and claim your success in this market.
Interested In Binary Options? Check out the Broker Reviews for the most suitable solution depending on your geographic location, size of investment and personal preferences.