Binary options are one of the simplest forms of investment and for this reason are preferred by many novice traders. This doesn’t mean, however, that they are free of risks, in fact, as any other financial instrument you should be always very careful because it is easy to lose capital if you start with too much superficiality and lightness.
That is why, although in recent years they are becoming the most simple form of investment, fast and sometimes highly profitable and best suited to beginners, we recommend you to be very careful and to approach this area with great care.
Before embarking on this adventure it is essential to learn how to properly manage the risk and your own capital.
Each trader should ask himself this question:
Is it possible to invest in binary options without losing money?
The answer is obviously NO!
It isn’t possible to trade without losing on some occasions, even when the experience gained is so great, even when predictions are studied in detail, even when the position seems to be close to 100% in profit.
The trader who believes he cannot lose like a sort of powerful Guru of financial markets will never be a good trader and will be short lived, therefore, it is always good to take into account the risk of losses that may affect his capital. However, to avoid the opposite risk, to those who think they don’t earn anything for fear of losing money, we strongly advise against this field.
You need a bit of initiative because no one can guarantee anything for certain, but the fear of losing your investment should never be stronger than the desire to earn money and make profits. For those who are afraid of losing money, there are formulas highly secure as governmental bonds, the bank account deposit or repurchase agreements that have a risk close to zero. Even if the recent events show us (Argentine and Greek stocks)that the risk of losing the capital is never null.
Risk management is the basis of any trader, beginner or expert.
At first it is normal to have little or no experience, then it is also conceivable to lose something during the first investments, but learning how to manage capital, you will avoid any emotional and economic crash.
Therefore to make a good trading you must learn to:
1. Minimize losses and maximize opportunities for profit
2. Correctly handle the capital
3. Optimally invest the capital
4. Risk diversification
The first thing you need to do for a good capital management is to choose how much money to invest in trading. This amount must never affect the income that is used for normal everyday life. First you must think of the family, to pay the mortgage and car payments, to meet the needs of wife and children, to take away something for the unexpected, and finally, only the surplus, that is, one that could easily be taken off without creating any difficulty, can be used for investment purposes.
This ensures that only the intended capital investment will be subject to risk and nothing else, never forget it. In this way, in the event that multiple consecutive operations will not close in positive, with the hope that doesn’t happen for you, you can always sleep peacefully, without considering that the psychological effect would probably be more bearable.
That said, the second fundamental rule for investors is to never invest all the money in one or few operations. A proper capital management is to minimize losses and maximize profits.
To do this, more expert traders claim that you should never invest too high a share of its assets in a single operation. Statistically, the part of the capital that may be lost in a single operation without preventing to the trader to make profit in the medium to long term, shall be 5% of total.
This is because, even one that may appear a negative period with a series of closures in loss, the trader with a proper management of capital can always count on the remaining part of the capital, and this will give him a way to retrieve. If instead the trader were to invest in a single operation 30% -40%, you can be sure that only 2-3 consecutive failures are enough to knock him out.
Suffer losses one after another can happen to any trader, even to experts. This can be caused by several factors, such as too much security, a negative moment, the greed which pushes the trader to invest in multiple profitable operations but very risky.
In addition, more than 5% per transaction, you should never invest simultaneously more than 15% of your capital. This serves to limit the psychological blow.
For example think about the trader that while complying the 5% rule decides to open 10 positions and these are closes all at a loss. It would be a tragedy, losing the 50% of its assets in a single day!
Amongst other things, binary options allow a good risk management, in fact, even before opening a position, the trader always knows both the maximum loss that will never be greater than the premium paid, and also the potential profit.
These specifications are very important, therefore you should always keep your feet to the ground and have control, because the temptation to venture into too risky or reckless investments is always behind the corner.