Any direction of exchange trading is a highly risky way of making a profit. Binary options in this matter are no exception. Despite the high degree of adaptation of the tool for the operation of private online investors, the simplicity of the trading algorithm with this format of the exchange contract, as well as the liquidity level of binary options, here you can get a complete loss of investment funds instead of a profitable trading result. However, professional traders and financial specialists have come up with a fairly simple method for reducing losses and getting a positive result in a stable mode – the risk management or management of the level of losses (this concept has another format in the trading environment – management). Today we will review the basic rules of management and optimal conditions that contribute to its effective use. We will also offer some practical recommendations on how to risk using the binary market.

 

What are the risks of trading options

So, what are the main risks in binary trading and what mistakes are mostly made by market players. Here it is worth noting that the main mistake, especially the novices of trading, is not even a violation of the rules of management in their classic form, but rather their own greed and the self-confidence of the trader. Having evaluated the potential of binary options already at the initial stage, the players set themselves high goals, and in the pursuit of quick profits they forget about risks and discipline. Thus, a large number of players lose money and do not achieve any results. To remedy this situation, beginners need to immediately understand that in binary trading there is such a thing as a negative expectation of profit. This mathematical term describes the difference between the level of unprofitableness and profitability of the trading rate. Take the average indicators of a binary option – a yield of 85%, a loss ratio of 100% of the volume of the bet. So, at each position, we can lose 15% – this is the indicator of negative profit expectations. It affects the final trading result. A simple example: having a capital of $ 100, and using in contracts contracts worth, say, $ 30, a trader, can draw a series of 3 trades. Having received 2 loss-making positions, the market participant reduces the volume of trading funds to a minimum and is not able to continue working in the market.

To avoid losing funds, investors need to use well-developed risk management and capital management rules.

 

Money management

The main method of reducing risks in binary options is the application of rules for management, which represent certain limits on the cost of bets. Here, the principle of the optimal ratio between the volume of capital and the amount that is used to formalize the rate on the market is applied. The classical requirements for effective management have these parameters:

• If the volume of capital allows, then it is necessary to use in trading the rates with the restriction of the level of investments 5% of the amount of capital
• When trading on a minimally available trading account, only rates with a minimum investment level are used

Given such restrictions, the terms of trade of brokerage companies come to the forefront. To obtain a wide range of conditions for the use of the rules of management, it is recommended to use trading platforms with minimal trading conditions and their optimal ratio. For example: professional brokers offer their clients trading conditions with such indicators – the initial level of investment in trading in the options market from $ 10, the minimum trading rate from $ 1:

MACD based system

 

Thus, customers receive not only the optimal balance of trading conditions, but also a wide field for maneuver in terms of effective application of the rules of management.

Using rates with a minimum value of the lot price, a trader can even form a relatively safe trading mode even on a minimum working account. At the same time, the dynamics of capital growth in this format of trading is quite high and allows dynamically increasing profits.

But one money management for effective trade is not enough – the market is a chaotic matter, which requires a wide range of techniques and approaches to managing the technical process of trade for the investor’s performance. Therefore, we offer you a set of additional approaches that will help to properly manage risks, and will contribute to obtaining the maximum number of successful contracts.

 

Trading Strategies

In order for operational capital to constantly demonstrate the dynamics of growth, traders should first of all use the forecasting system, in which the efficiency factor will be at least 65%, only in this case it is possible to profitably work in the binary market. There are no complications, any indicator strategy with well-tuned analysis tools allows you to get the specified trading statistics. For example, a system based on MACD:

This system, based on simple signals in the form of interlacing of oscillator lines or directions of histogram construction, allows to form up to 85% of profitable forecasts. Thus, the market participant gains advantages when working with binary rates and a consistently high result.

To maximize the profitability of trading operations, you will need a package of strategies from several forecasting techniques that are able to analyze quotes of assets in a variety of market conditions. It is recommended to create a technical set of systems from different areas of analysis: fundamental and technical. In this case, you will need indicator-type systems, trading strategies on a clean chart, trend and counter trend systems, and techniques for assessing the fundamental indicators of the market. Such a systematic approach to the valuation of the asset’s price will allow the most efficient generation of signals for trading and will increase the overall indicator of trading operations.

Do not put all the money in one basket

The winged phrase about eggs in one basket, which we slightly paraphrased, very clearly reflects the main mistake of most traders, especially beginners. The matter is that investors usually fixate on one asset and constantly work, applying a single trading instrument. Yes, for psychological reasons, it seems to investors that working on one asset, you start at a certain moment intuitively feel the market and even without the specialized tools to predict the price movements. However, this can only work for a certain time. Remember, the market is a chaos that can be systematized only through a wide range of pricing and forecasting techniques. Therefore, for masterly risk management it is necessary to work on a large number of assets.

So you will be able to get the minimum amount of profit from the large amounts of profit due to the large number of trade rates. In this mode, not only the effectiveness of the strategy will turn on, but also purely mathematical and statistical indicators. For example, for one asset you are in a certain period of work receive a loss, and for several other tools, trading positions bring revenue. So, compensating for losses, you will come to a common positive result and will be able to steadily increase the volume of the investment account.

In addition, working on several assets allows diversifying risks. For this, package trading is used. In practice, everything happens quite simply – you, as an investor, using various assets, lots with various indicators of profitability and expiration, form a package of trade rates. Given the varying volatility of trading tools, the predictability of quotations, at a certain point in time trading you get an investment portfolio with diversified risks, in which profitable contracts completely level losses on other trading positions. Thus, the overall trade indicator will always be in the positive zone and as a result, the investor dynamically increases the capital.

 

Hedge contracts

Hedging or technical insurance of trading positions is a very effective method of managing losses and gaining additional profits. A fairly wide range of techniques is used here:

• Work on correlated assets. In this case, the interrelation of trading instruments is used among themselves. A simple example can be given using currency pairs. So, for example, with the growth of the EURUSD pair, we can observe a simultaneous decrease in such instruments as USDJPY, USDCHF. Thus, when drawing up lots on the EURUSD pair, we can insure the rate with the help of contracts on the correlated assets, placing the lot with an option down. The application of this approach allows not only to reduce losses from trading, but also to receive additional rates with a positive result, thereby increasing the volume of profit.

• Averaging is the logical acceptance of betting on trend and corrective market movements. Quotations during the construction of the trend demonstrate cyclical corrective kickbacks, which are difficult to identify. However, they allow you to hedge trading rates. Everything works just fine – for example, you opened the bet up, but the market began to be adjusted downwards. During such a rollback, you can draw up an additional number of trades towards the main trend. As a result, after the price returns to the trend movement, you will receive a series of profitable rates and several unprofitable contracts or you can work out a market swing without losses. In any case, the overall performance indicator will be positive.

• Martingale is a purely mathematical system of minimizing losses, which uses a simple method of doubling the volume of a trading lot after receiving a loss-making rate. Thus, at the expense of profits at an increased rate, we compensate losses from the previous contract and can count on an increase in capital. Here it is worth saying that martingale is a controversial system and is not welcomed by professional traders. The reason for this is the rather extravagant process of working martingale. The fact is that with a strong overstatement of the initial trading lot and a series of doubling the volume of contracts, the investor can receive critical losses for capital. Therefore, in martingale work, it is necessary to be extremely cautious.
The hedging system of option rates has many approaches and approaches, we have offered you only a few of the most popular popular modes that are most often used by investors.

So, let’s sum up – the risks in binary trading are connected not only with the direct algorithm of the contracts work and the problems of effective market analysis, but also with the psychological moments of the investors’ work. To easily compensate for losses and properly manage your operating capital, you must create your own algorithm for working with options. To do this, you need to apply the correct parameters of trading conditions, have a personal strict discipline in the trade, use effective rules of management and strategy, apply additional methods of minimizing losses. As a result, the market participant independently regulates its own losses and achieves the safest trading regime in the binary market, which, of course, contributes to the overall profitability of trading operations.

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“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

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