Whether you are looking for a good investment opportunity to dabble with on the side, or something that you can devote your full attention to and make it your full-time job, binary options trading is an excellent choice either way.
There are people who are making good money solely from Binary Options trading, but there are also people who are actually losing money. This is because just like most types of investments, binary options trading has its risks. You need a strategy to get around these risks and make profits, mainly because of the “all or nothing nature” of the investment.
The following are some tips on how you can minimize the losses and maximize the gains:
The Basics: Choose a Good Binary Options Broker
Despite how simple binary options trading looks on the surface, there is much more to it. Thus, if you are new to all this then you must choose a reliable and honest binary options broker. Take your time in your research and check out what others have to say before making your final decision.
Don’t Stick to the “Bare Minimum”
Most brokers require the investors to make a minimum deposit of $200 or $250 in their trading accounts. The investors think that the money they have invested will grow with time as the traders will make profits. However, this is not always the case.
Generally, when your investment is small the gains are also small. This is because with limited funds the traders have limited options to invest the money in. Thus, you may feel you are playing safe with the bare minimum investment, but in reality, you are actually robbing yourself of the opportunities that you will otherwise get if you had more funds in your account. Remember this- the odds of success are higher when there are a large number of investments.
Understand the Power of Fundamental Analysis
A good investment is a calculated and informed investment. And you can make a good investment by doing your homework, which in the domain of investment means analyzing the performance or attributes of a company you plan to invest in. Learn about the company as much as you can. Get your hands on the financial reports, cashflow statements, customer reviews, and recent acquisitions. If the company is going in the right direction you can invest in it safely.
Deploy Risk Management Strategies
Risks are inevitable in every kind of investment. However, by carefully using risk management strategies you can ensure that losses are kept to the minimum.
One of the most effective risk management strategies in the 5/15 rule. According to this rule, you should make investments that make up just 15% of the available funds. Thus, if your trading account has $10,000, then you can either invest the full $1500 in one trade, or invest it three-ways, i.e. $500 each for three trades, thus making the total $1500.
Another risk management strategy that should go hand in hand with the 5/15 rule is diversification. This is the key to a successful binary options trading journey. It is best to never put all your money one a single type of investment. So, in the case of binary options trading you can invest your $1500three-ways by trading $500 for a USD/EUR pair, another $500 on an asset, and the remaining $500 on a stock. This structure improves the success rate considerably.
Binary options trading is different than most other traditional forms of trading. However, even here success is based on the same core values- patience, education, and a little bit of daring. If you are new to this, you can expect a learning curve, but once you have mastered the basics you will definitely see improvements.