‘Another guy made $10,000 with his single trade on binary options.’ You might have read many blogs on ads featuring this compelling headline. And so far, if you have read our articles, you know that this isn’t a scam.
So, if you also wish to be one of them. Then stay tuned with the article because we are disclosing the right way to invest in binary options.
What is the proper amount to put in Binary Options trading?
What is the maximum amount of money I should invest in binary options? Ummm, this is a common question among traders, and one may answer it in a variety of ways. The first two responses that come to mind are always more questions.
How much can you put for trading, and how much will fly away from your bank account for every loss you have? Two further questions arise from the first.
How much money can you afford to deposit with a binary options broker, and how much money can you afford to trade with (keeping the risks in mind)? If you haven’t figured it out yet, we are referring to financial management.
However, before we get into the subject of how much to trade, let’s first define binary options. They’re a type of financial instrument, not an investment. They’re an entirely recreational derivative trading instrument with no inherent assets.
It’s OK if you want to trade binary options to develop some wealth over time; however, if you assume binary options are an excellent way to invest for the future, you’re mistaken. Now that we’ve established that, we can move forward and handle the issue at hand.
The amount you invest determines the amount you trade
Binary options aren’t the same as investing. They’re a simple, short-term, extremely speculative wager on a changing market that’s straightforward to utilize. They’re designed to be a simple way to get into the market while still being enjoyable.
For the same reason, they are short-term and speculative. Trading binary options are by no means an investment, so the first step in determining how much to trade is only to trade money you can afford to lose. Binary is not a good place to put your savings, which you should keep in a genuine bank, and it is also not a good place to make long-term investments.
As a result, it’s not the best place to stash your rent payments, especially if you’re short on cash. Simply investing money into an options trading account might take up to a month to be returned. This is where you should invest your amusement money- Money that serves no other purpose than to give you access to the market because you enjoy trading it.
It’s a misconception that you can’t succeed with a small deposit or a minor trade. It’s OK if you can only afford to pay $100 to begin starting. It may restrict your broker options, but there are plenty of decent ones. If you can’t locate one you like, put aside another $100 for the next month.
You could also look for a broker with a somewhat more significant minimum deposit. You can still begin trading in either situation. All you have to do now is be responsible. Trading is trading, and if you approach your transactions correctly, it doesn’t make a difference if you lose $10 or $1,000 as long as the percentage is correct.
The idea is never to trade too much, at least not enough to jeopardize your capacity to trade again. To accomplish this, you must adhere to money management and percent standards. This is why it makes no difference how much money you lose.
The amount you trade should follow these rules
The best approach to figuring out how much to trade is to have rules to assist you. Money management guidelines, often known as percent rules, state that you should always trade a particular percentage rather than a fixed sum.
For binary options trading, we suggest utilizing 5%. This means that on each given deal, you only risk 5% of your account value. Because of this, you can have up to 20 trades open at any given moment, and none of them will ever be large enough to harm your account. Moreover, there is no need to waste time deciding how much to exchange.
It is not difficult. 5% of the total It’s that simple. The most astonishing thing is that your 5% will change in proportion to the amount of your account. If you have a few losses, your 5% decreases, and if you have a few profits, your 5% increases.
This way, you may ensure that any possible earnings are maximized while also limiting losses. The broker permits customers to trade any monetary amount over $50, allowing them to trade as much as they want.
Because some brokers only accept particular amount increments, you’ll have to round up to the nearest acceptable amount. If you want to take a bit more risk, round up; if you want to play it safe, round down.
Why is money management important?
A crucial aspect of trading is money management. It becomes much more crucial when applied to a high-risk, high-reward investment strategy like binary options. We begin by explaining the fundamentals of money management before expanding on the topic and looking at a broader money plan.
Money management fundamentals
For successful trading, money management and controlling risks are essential. Money management is a type of risk management, on how you protect yourself from yourself, how you minimize (to the extent possible) fear and greed, and how you avoid hitting rock bottom and come back to the market of trade.
It’s the process of overseeing your entire investment portfolio. The majority of people will recognize that risking all of their money in one trade is a foolish decision. Many people will also understand why ‘portfolio’ management contains components of allocation and diversification. When it comes to managing a binary options bankroll, the same concepts apply.
Outside of those most obvious advantages, there are the methods in which it assists traders in more subtle ways.
Some perks Of Money Management:
- The ability to make better-informed judgments.
- The assurance that there will be funds to trade within the coming time.
- The certainty that expansion will lead to more growth without increasing risk or requiring additional planning.
One can do it in a variety of ways. Proper money management is a way of risk management that allows you to trade freely while also allowing profitable positions to generate as much money as possible.
The Percent Rule is the most extensively utilized strategy of money management:
#1 The percentage rule
According to the Percent Rule, each deal is always X percent of your total account value. Traders that are cautious may go as low as 1%. Potentially risky traders may go as high as 5%, but the principle remains the same regardless of the amount. There are several reasons why this strategy performs so well and why all professional traders like to adopt it.
- It eliminates the uncertainty in trade size and is essential for trading psychology. It’s never a matter of deciding how much to trade or allowing your emotions to guide you.
Even when the signal is excellent, a terrified trader may make a trade that is too little, and an overconfident trader may make too large transactions, even when the signals are poor.
This strategy allows you to focus on what matters most, the signals, and how to trade them because your mind is unfettered and clean.
- Using a percentage rather than a fixed amount implies that the size of your deal will change as your account grows or shrinks. If you’re on a losing streak, this suggests you’ll make smaller trades in the future.
There has never been a deal that was substantial enough to wipe you out, and there has never been a losing run that was severe enough to wash you out. On the other hand, if your account grows, the percentage you trade will increase profits.
When you trade $30 to make $46, it may seem insignificant, but it’s no different than trading $3000 to make $4600 if that’s what 5 percent of your account is worth.
- The Percent Rule doesn’t enhance confidence as it does remove an impediment to your existing confidence. Simultaneously, it protects your account long enough for you to gain some experience and, as a result, the joy that comes with attaining a goal. Anyone can detect a signal, but only a competent trader will trade it and be able to escape without crying if he loses.
That’s how it functions. If your initial investment is $500, a 5% trade size equals $25. To keep things simple, we’d trade $25 until the account reached $550, at which point we’d increase the trade amount to $27.5.
If you lose, the interface will reduce your account balance to $475, and the method will reduce your trade size. In this situation, $23.75, and if your broker doesn’t allow you to add pennies into the deal amount, we will round down rather than up to be safe.
When it comes to modifying your trade size, it’s just as vital to increase it to decrease it; you don’t want to lose money by trading only 3% or 4% of your profile when you should have been investing 5%.
Suppose you become upset after losing money and try to recover your losses by trading more significant and larger amounts (e.g., a Martingale-like approach). In that case, you will finally crash and burn and lose everything. Martingale’s strategies have ended many trading careers.
Many of the world’s best traders, and rightfully so, dismiss the Martingale concept. They never look good, and they severely limit the amount of money you can trade.
For instance, the maximum amount one can trade on 24Option is $20,000. Investing $1,000 every transaction, on the other hand, would be unwise because you’ll never be able to endure more than four losses in a row before going broke (and would be $31,000 in the hole assuming a typical double-up Martingale).
We agree that setting rules can help in minimizing losses and help gain short-term motives. To fulfill them, one trades along with the trends or sets a limitation to their daily trading frequency while attaining an ITM percentage of 60% or more.
Though these rules can vary from person to person, there is one thing in common: the rules are bounded goals and time-bounded. Hence, a rule that doesn’t favor profit within a set period is of no use here.
When specific profit targets are erroneously prioritized, becoming emotionally distant from your trade is pretty challenging. When one of our known traders first started trading, he used profit targets. He discovered that they were nothing more than a distraction that caused me to make poor financial decisions and losses he could have prevented initially.
In binary options, calculating your risk is very simple. According to the 5% rule, you can risk $50 per each $1000 in your profile at any given time. This means that all trades are $50 until you start winning or losing and need to modify.
So, after understanding this, your initial step is to choose and register with a broker who will enable you to trade within the parameters of your risk tolerance.
Your risk appetite must also be factored into the equation. A 5% strategy is acceptable, but it’s on the risky side. Risk is reduced much more with a 1% per trade risk reduction strategy. This could be beneficial to those who are new to binary options. Nevertheless, as previously stated, your broker’s minimum trade size may decide the minor percentage you can bet with.
So, we can conclude from the above that there isn’t a specific answer to how much one should invest in binary options? If you are someone who works 9-5 and wills to earn a passive income, then you should put only 5% of your income and save the rest or, even better, save and ‘invest’ in stocks and other assets like cryptocurrencies.
Going with the rule of thumb, the more you trade with, the higher the returns will. But again, in order to have more, you will need to risk more. However, unlike a game of dice here, the possibilities of a win to loss aren’t 50-50.
The people who make it to the apex and hit the bar of a ‘millionaire’ make up to 0.01% of the active global traders. Hence, it is best to stay consistent and trade with moderate benefits and follow all the money management tactics discussed in this article.