Updated: Jan 31
"Think binary options aren’t risky? Think again. You must read this guide for reducing, controlling and limiting you risk."
Risk Is One Thing, Being Risky Is Another
Speculating financial markets, trading and trading binary options carries risk. It has to, that’s the name of the game; risking investment capital on the changing prices of stocks, forex, indices and commodities. In general, the more risk you take the bigger the rewards, the catch is that the bigger the risk well, the bigger the risk. What most successful traders know and aspiring traders want to understand is that risk and taking risk does not mean being risky. You can take risk in a calculated way, profit and move on. You can also be risky, blow your wad and get washed out of the market.
Scammers Are The First Hurdle– The first way to limit your risk is to avoid scams. I know this may sound like pretty basic stuff that everybody knows how to do but unfortunately it’s not. Binary options has grown up in many ways but so have the scammers. Every time I find a new good broker I find a new scam to match it; the trick for any trader is to learn to spot them. For newbies it can be a challenge. Shady brokers put a lot of effort into looking legit. Some go as far as cloning the name of a well known financial company to lure traders in, others create fake regulatory agencies to give them a stamp of approval. In the periphery are all the schemes, trading systems, autotraders and gurus who claim they can make you rich. I know its tempting but if it were really that easy then everybody would be rich. Here’s a tip, if it’s free there is a good chance it is a scam. If it, whatever it is, has real value it would cost money.
Get Your Head Out Of The Clouds – The second way to limit risk is to keep it real, get your head out of the clouds and come back down to earth. Trading binary options is fun, it’s simpler than other types of trading and you can make money doing it. It is also risky, challenging and not something everyone can master. If so, every one would be doing it, right? You have to be realistic, it’s nice to dream of wild profits and vacations on the beach but it takes more than a deposit and wish to succeed to get that kind of results. If you have already been trading then you know its hard, binary is easier but still hard. If you haven’t been trading know this; it will take time to become consistently good. Notice I say consistently. It is not hard to produce some wins but you have to be ready to make some losses along the way. The key is to pick more winners than losers so that over time you come out ahead. If you think you are going to walk right in and make a pile of money you are going to disappointed.
Focus On What You Are Doing– Staying focused is a third way to limit risk. There are a lot of indicators, more strategies and hundreds of assets to use them on. With all that it is easy to get distracted and I have not even mentioned the fundamentals, the economy, market sentiment or the never ending line of gurus, signal providers and tipsters trying to get your attention. Jumping around from tool to tool or strategy to strategy is a quick way to loose money. The purpose of a strategy is to weed out the false signals. If your strategy is not working it is probably not a problem with the strategy, it’s probably a problem with how you are using it, how you are trading or some other aspect of your system. Focus on what you are doing, learn it so you know how to use your strategy and system properly, don’t look for next holy grail. It stands to reason that if you can’t make one strategy work right you’ll have a problem with the next. My hedge, it is OK to experiment and learn new strategies, just do it wisely.
Don’t Wipe Yourself Out – The fourth way to limit risk is to use wise money management. I can’t say this strongly enough, wise money management. This is where the rubber meets the road so to speak. You’ve avoided scams, you understand trading is a challenge, you’re focused on a strategy and ready to make a trade. Even after all this risky behavior such as placing to much money on one trade can wipe you out faster than just about anything else. Account management and position sizing is intended to let you trade but never enough that one loss, or a even a string of losses, will wipe you out. The generally accepted rule is to use a % of your account. This way your trade amount will grow with your account, maximizing profits, while keeping each trade to an appropriate size. Low risk would be 1-2% of account value, high risk might be as much as 10% but the generally accepted range is 3-5% on each trade.