Everyone who trades binary options needs to have a money management plan in place. Ideally, this plan would be outlined in advance of the first trade. However, it’s never too late to implement a strategy for realistic fund distribution. One of the best ways to control investment risk is to tightly control your funds. By creating and adhering to a plan, the financial risk associated with this form of trading can be greatly reduced.
Every money management plan should include these three elements:
- Initial Deposit Amount Consideration
- Investment Amount Limitations
- Profit Withdrawal Planning
Deposit amount is listed first because it will actually be the first step in the process. In order to trade, a binary options broker much be selected and this broker is going to ask that you make a deposit. Each broker is going to have a minimum deposit requirement, with most asking from $100 to $300 (industry standard for minimum deposit is $250 USD) be placed into your account before you are able to trade within the provided platform. Typically, there are no per-trade fees or commissions to be paid, so the entire deposit amount should be available for use in trades.
The decision of how much to deposit is important for several reasons. For one, you’ll want to start out with enough money to cover any losses that come while learning how to trade well. Another important consideration will be bonus funds. Bonuses are often offered to first-time depositors, with the amount of the bonus usually being directly linked to the deposit amount. Keep in mind that bonuses will always have some requirement that must be met before the money becomes yours. Be sure to ask what these are prior to accepting any bonus.
Each binary options broker is going to set minimum and maximum investment amounts for each trade. Expect the minimum amounts to vary by trade type. Many brokers now offer minimums as low as $1, a fact which works to the advantage of the novice trader. Maximums amounts are typically set quite high and should really be of no concern to any trader who is just starting out. Part of your money management plan should include setting your own personal maximums. Initially, the maximum investment should be low, but this amount can be raised as you gain more experience.
One of the most popular strategies is of the compounding variety. With this strategy you would select a set percentage of your total account funds for use on all trades. As your account funds increase, so then would the investment amount. With each loss, the investment amount would automatically decrease. Compounding works to safeguard your account funds during losing streaks, while allowing for profit growth during times when you are trading well.
Lastly, give some consideration to profit withdrawal amounts. Should you plan to make a withdrawal and then continue to trade, a reasonable amount of funds should be left in your account. When using a compounding strategy, any withdrawal is going to impact your investment amounts. Some brokers do charge withdrawal fees, while others are willing to process your payment request for free. Be sure to ask your binary options broker if any such fees apply, as well as whether or not any withdrawal minimums are in place.