Money Management (money management) is a tactic aimed at optimally determining the size of the investment rate in binary option.
Any the strategy used in binary options brings a certain percentage of unprofitable trades. The trader assumes that most of the contracts will bring profit and increase the total amount allocated for trading.
There are no methods to predict how unprofitable trades will be distributed, but there is a 100% probability of getting several negative results in a row (series). Excessive investments in binary options will lead the trader to ruin or gradual degradation of the total amount of capital, without having time to recover.
An incorrect choice of the investment size can lead to a loss of a profitable strategy, just like an ill-considered haphazard increase in the rate based on the resulting series of profitable binary options transactions.
Basic rules of money management in binary options
1. The amount of the deposit depends on the reliability of the broker and the level of professionalism (experience) of the trader.
Novice traders, starting work with a new the broker , regardless of the presence of negative experience, determines the amount of the contribution based on the earnings potential, although statistics indicate a 90% probability of losses. The loss of the first deposits is an axiom of the stock market, in the absence of experience, the initial amount of investment should proceed from the principle of upcoming multiple losses. If the broker has complaints or negative reviews on the network, the expected investment should be reduced to the minimum possible.
2. The investment should not exceed 10% of the losses, the ideal option is 2% of the total deposit amount.
Test the strategy for binary options on the history of quotations, using additional analysis systems, if the broker's capabilities do not allow you to provide archived data. To increase the accuracy of the test, equate expiration time of options to time ranges candlesticks. Determine the maximum loss and the number of contracts that expired without a bonus in a row.
The part of the deposit allocated for trading must be of such a size that:
- in the case of a maximum drawdown determined during the tests, the total loss of the trader did not exceed 30%;
- unprofitable contracts in a row – 10%
3. Avoid binary options transactions on time periods with low trading activity, unless this is provided for by a special trading strategy.
There are no assets or strategies on the stock markets with a 100% guarantee of profit, since the price instantly takes into account many factors that cannot be predicted or foreseen. But at times when the majority of investors are absent from the financial markets (Asian session), the events will not find an active response, so the options will expire near the price levels of the beginning of the transaction. This will lead to a high probability of loss for most types of binary contracts.
4. Increase the number of profitable trades in the process of binary options trading.
Choose a broker with an American type of options that allows you to take part of the premium if the option is in the money - "in the money". Strive, without waiting for the expiration, to interrupt the transaction if it has made a profit.
5. Use the money management system as an indicator of the need to optimize the strategy.
After testing the strategy, the trader determines the maximum loss and a series of consecutive lost binary options. This data is not only used to configure the parameters of money management. Any excess of these figures indicates an increased loss-making strategy.
The fact is that any trading system ceases to make a profit for a long period of time. This is due to a mode change volatility, the period of cycles of decline and rise of markets caused by economic policies, wars, crises, etc.
To stay profitable trend, traders have to select new parameters – to optimize or completely change the trading system. The discrepancy between the theoretical and practical named control data of money management will prompt the onset of this moment.
The money management system is a tactic that works within the framework of a found and tested strategy. Haphazard trading leads to an unambiguous loss, regardless of the choice of the investment size relative to the total deposit size.
Binary options are often perceived by traders as betting "on red and black" in a casino. But even in this case, a strategy is required, for example, martingale, which does not exempt the trader from searching for trends.
The method based on increasing the investment in order to be able to cover the previous unprofitable transaction requires mandatory, strict rules for the size of the bet. Each martingale strategy comes with its own deposit distribution tactics and requires mandatory testing.
The choice of the broker's percentage of the profit of payments on binary options
If the trader correctly predicted the fulfillment of the conditions, at the time of the expiration of the binary option, he receives a bonus in the percentage amount of the investment. The same type of contract at different brokers has a different percentage of payments from 60 to 100% (we do not take exotic binary options into account).
The trader is obliged to take into account the amount of the premium, when choosing a broker, you can not refuse the opportunity to earn 100% from a reliable broker instead of 60% from an unknown company.
A series of unprofitable trades entails emotional stress, which will result in an increase in the number of mistakes when buying a binary option or lead to haphazard trading. This is a reason for stop trading – the trader must force himself to withdraw from trading for at least a week.
The break can be increased, but not reduced, the best medicine will be the search for new strategies, testing for historical quotes of new ideas. Training will help to restore emotional balance and gain confidence.