Binary Options Money Management

Binary Options Money Management is something that can't be stressed strongly enough if you want to come out ahead with Binary Options Trading.

These Money Management Techniques, are to be used when trading your own account.

First thing with regards to Money Management (MM) is to make sure that the binary options broker that you are using is a decent broker and has a good track record for paying out.

Not much use in putting in all the hard work, only to find out that your broker is a scammer and you are never going to see any of your winnings. 

If you need a Binary Options broker, try one of my recommended brokers on this page 

Next thing is that you want to be looking for is payouts as close to 80% as possible which my recommended brokers have.

Obviously the higher the payout the better, but I have noticed over the last year or so, the percentage payouts have definitely come down across the board, so at the moment the payouts seem to be between the 70% to 80% range, so make sure that you get a broker that is paying out in the high 70+% as a minimum.

I think that is because traders are getting sharper with regards to how to trade Binary Options Profitably.

What you need to understand about these Binary Options brokers is that they are in business to make money, not just to hand it over to you.

The ideal situation for them is when they have the same amount of traders on either side of a trade. Some sites even show the market sentiment, which is the number of trades they have in either direction. Quite often this is 50/50

Well that is heaven for these brokers, because let's say that they have 100 traders trading $100 that an asset will go up and they also have 100 traders trading 100$ that the same asset will go down.

That means that no matter what the outcome, they are going to pocket $100 from the losers and have to payout $75 to the winners (assuming a 75% payout) which means that they get to pocket 25% of the 100 traders losing $100 which is $2 500 from the $10 000 traded and payout $7 500 to the 100 winners.

This is regardless of the outcome.Of course if you were the only trader taking a trade, then you are in effect trading against your binary broker, which obviously they are hoping that they win and not you.

That is why these Binary Option Brokers are happy to get anybody to open an account, because the more traders they have trading the better the arbitrage situation is for them and the less risk exposure they have.

So, with that in mind the key thing is to protect your capital and build it slowly while putting "the markets money" to work for you.

Firstly a maximum of 5% of your bank balance per trade is the most you should trade. The ideal maximum should really be 2 - 2.5%.

So, if the minimum is $25, in an ideal world you should have a $500 balance, which would be 5%.

The better off funded you are, the better, believe me.

However most people generally want to open with the minimum and make the maximum, so this means that they are going to be making trades with 10% of their balance quite often and that is really pushing it.

The brokers know this fact and that is why they will often let you open an account with $250 but then have the minimum trade amount set as $25. They are forcing you to over-trade your bank balance, so do not fall for that trick and fund your account correctly.

Our first aim with Money Management is to actually get to double our account in the first place. This is not easy especially when you are starting out.

Now if you do get to the stage that you have doubled your account, withdraw your initial deposit or trade with a smaller percentage of your bank roll.

Plus you won't believe how much less stress you will be under, now that your own money is safely back in your pocket or you are trading with a smaller percentage of your account balance.

So here I will give you a few ideas, based on an account with $2000 in it and 5% first trades, so $100. Just to make it easy with the maths, then adapt for yourself whichever style you like.

We will work off a 75% payout and trying to win 3 trades in a row, but look for a broker with high 70+% payouts like the ones I mentioned before.

Straight Let It Ride Strategy:

First Trade:                         $100 win 75% = $175
Second Trade:                   $175 win 75% = $306.25
Third Trade:                        $306 win 75% = $535.50

Total Profit $435.50 Verdict: High Risk High Reward

Remove Initial Balance After First Win Strategy

First Trade:                         $100 win 75% = $175 (Remove your initial $100 and trade with $75)
Second Trade:                   $75 win 75% = $131.25
Third Trade:                        $131 win 75% = $229.25

Total Profit $229.25 Verdict: Less Risky Less Rewards, But probably the one you will use the most. Sustainable.

Hold Back Initial + 30% Strategy

First Trade:                         $100 win 75% = $175 (Remove initial $100 plus 30% of $75 (75-30% =22.5= $52.50)
Second Trade:                   $ 52 win 75% = $91 (Hold back 30% (91-30%= 27.30 = $63.70)
Third Trade:                        $64win 75% = $112

Total Profit: 22.50+27+112= $161.50 Verdict Slow and Steady - Sustainable & Less Stress

Note, that many brokers payout more than 75% and I recommend ones with close to 80% payouts rather.

I hope that has given you some ideas. I don't know what your risk tolerance or your bankroll is, so I can't recommend for you, but honestly, don't under estimate how stress can affect your trading.

If you take the Hold Back Initial + 30% Strategy, which is going to be the more stressful trade, the first or the second trade?

 The first obviously, because you have the potential of losing $100 of your own money, yet with the second trade, there is No chance of losing any of your own money, and in fact even if you lose you will still be ahead by $22.50

How about that third trade compared to the first? No question the third trade is stress free, in fact it will be quite exhilarating, because No matter the result, you will still be ahead financially by $49.80   ( $22.50+$27.30) if you lose and ahead by $161.50 if it wins, with No chance of losing any of your own money.

Believe me when I tell you that it makes it much easier to enter trades when you are not under stress. Try it for yourself.

If you lose a trade, go back to the beginning and the first trade amount.

But here is another idea.

Why not work through all 3 of those, starting from the last one and moving on up to the first one? Anytime you suffer a loss, go back to the very beginning and start again.

Or how about everything I just mentioned, but instead of going for three in a row you go for two in a row?

Just some ideas, but seriously have a plan. It is very easy to get ahead of yourself and trading more than you can afford to.

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