The popularity of binary options as an investment tool is growing every year, largely due to the fact that this type of contracts allows you to control your own risks. However, even though the risks in binary trading are fixed, they still exist and will not go anywhere. In this article, we will review the main risks that a trader, who has chosen binary contracts as a specialization, will eventually encounter.

Revenue and risks binary options trading 2018

Binary options are a high-yield contract, when trading them you can receive up to 80% of the profit for each transaction. Some brokers can afford to offer higher returns on certain assets, for example, brokers from our top 5 offer up to 90% return of the invested amount. However, with such a high profitability of the tool, one should not forget that there is always the possibility of losing part of the deposit, and without proper analysis of your capital, you can completely drain the entire deposit. It happens quite often with inexperienced novices who are too self-confident in the market and mindlessly spend their savings.

Possible risks in binary trading

Traders’ forums often describe binary contracts as a fairly simple tool, with a low probability of losing their capital. However, in order for this statement to correspond to reality, it is very important for the trader to develop their own scheme for managing their capital and risks. That is, it is necessary to think in advance which part of the capital you plan to invest in each transaction. If the risk management system is properly designed, the trader should clearly plan how they will distribute their funds between not only transactions and assets, but also between brokers.

Another type of risk while trading binary options is the likelihood of making an incorrect prediction. Even with an ideally thought-out strategy that has repeatedly proved its profitability, there is always the possibility that the signal received on it may prove to be unprofitable. A situation like this is possible for any trader, whether it be a novice or an experienced market participant. In such case, a competent risk management system helps minimize the risk. It is recommended to invest no more than 10% of your deposit in one transaction, and even better to not exceed the 5% mark. Decent brokers are laying this rule of money management at the stage of developing trading conditions for their customers. For example, brokers from our top 5 have a minimum initial deposit of $ 100, while the minimum investment in one transaction is $ 5, which is exactly 5% of the total capital.

With experience, a trader will learn to trust their intuition, and with full confidence in the profitability of the transaction will be able to invest not 5, but 10% of their capital. However, for beginners this risk is unjustified. If the confidence that the transaction will bring profit is very small, it is recommended to reduce investments to 3% of the deposit.

The degree of risk while trading binary options can significantly increase depending on the type of the chosen contract. Less risky is the classic option High / Low. Today, most brokers offer them. Reliable trading platforms however, has one more variation of this type of contract – Above / Below. The riskier types of contracts include One touch, where the yield is promised to be 200, and even 400%. With such a potential profit, the risk of losing your own deposit, respectively, also increases.

Risks increase substantially when traders incorrectly choose the underlying asset, for example, if they trade during the release of important news. Many experienced traders do not recommend trading at all during such periods, since these type of publications can greatly affect market fluctuations.

Another kind of risk can be called “trading without proper preparation”. There are a number of newcomers who want to skip learning and testing their own skills on a demo account. Some want to start earning a profit faster, others think that specialized training is an expensive ambition. In fact, the lower the level of knowledge about trading and the principles of market analysis of a trader, the higher the probability that they will lose their deposit and become disappointed in themselves. As per the cost of training, it’s true that registering for a training course can result in an expensive price, therefore it is important to find yourself a broker that can offer a similar training course for a more reasonable price. Reliable brokers provide such training courses for free. In addition, a free demo account with an initial deposit of 1000 virtual dollars will help consolidate the knowledge acquired in practice.

How to reduce the risks in binary trading and make a profit?

Unfortunately, you can not completely avoid the risks while trading binary contracts. However, it is in the trader’s capabilities to minimize them to zero. For this it is enough to follow simple and effective rules:

1. Do not immediately invest all available capital. Even with 100% confidence in the accuracy of the forecast, you should not do this. In trading, greed is a bad adviser, it is important that no matter the circumstances, to not to risk more than 5-10% per transaction.

2. Carefully select your time for work. For those who like trading according to the news, an economic calendar should be an obligatory tool, where you can find out about the date of the release of important publications, which can substantially affect the strategy used by the trader.

3. Carefully select the underlying asset. All of the financial instruments have their own volatility. Before the final choice of an asset, you must first observe the behavior of some of them to know when their volatility begins to grow, and when it decreases. For example, the Euro’s volatility at decreases during the nighttime, and is activated during the day. On the other hand. The situation in Asian and Pacific currencies is the complete opposite.

4. You have to be prepared for real trading. After all, success is achieved not by someone who constantly “gnaws the granite of science”, but someone who was able to apply the knowledge gained in practice. Therefore, it is crucial to study the strategies and develop your own tactics of behavior.

5. Do not rely on luck. Intuition, of course, can develop with traders over time. It is not a talent someone is born with, but the result of concluding thousands of deals. For beginners, market intuition is not inherent because of the lack of experience. Therefore, they need to pay attention specifically to a thorough analysis of the market situation, and not rely on luck.

6. One of the most important aspects of risk reduction is the correct choice of a broker. With a reliable mediator, you can not only preserve, but also increase your capital. Reliable mediators like this are those, whose activities are monitored by the authoritative regulators. Good brokers have a large selection of training materials and analytical tools that will help beginners learn and improve the quality of their forecasts. The broker allows its clients to trade binary options through a huge list of assets. In order to test developed strategies, they provide a free demo account.

Strictly following the rules provided above, will allow even a novice trader to significantly reduce the risk of losing their own investments and their entire deposit as a whole.

TRADE OPTIONS

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

Risks and earnings of binary options trading in 2018
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