Binary Options Trading for Living – Is this Possible?
The widespread prevalence of the internet in personal computers and mobile devices has taken trading off of the exchange floor and into the realm of retail trading. But how many traders are truly successful, and how many people are able to trade full time for all of their income. The binary options market is full of half-truths and false promises, and we must take a conservative approach when we are getting started with a trading career. Here, we look at some of the myths realities seen in daily options trading.
What is Trading for Living?
Trading for a living implies that a person makes most or all of their income taking positions in the financial markets. But what most people don’t know is that nearly 98% of traders ultimately lose money. Sure, there might be some lucky streaks early on, but, ultimately, the house usually wins and individual traders lose. Because of this, successful trading requires a conservative approach that involves study, practice, and dedication. If trading was easy, everyone would be doing it. So, if you truly expect to be a successful trader you must understand that you will need to approach the markets with patience rather than greed.
Myths about Trading
The biggest (and most destructive) myths about trading come when proponents of certain trading systems proclaim to have strategies that work “90% of the time,” or “in any market conditions.” Unfortunately, these are completely unrealistic promises and all traders will have to face losses much more often than this. Another myth is that you need to be a winner in a majority of your trades in order to make money. This is also completely incorrect.
If for example, you lose $10 on nine trades and then you win $100 in the next, it means you are keeping your head above water — and this is all a trader is every really trying to do. Because of this, it is important to structure your trades in such a way that you are making more money than you have lost. This might seem like a dull set of expectations but if you are able to accomplish this, then you are already ahead of the losing 98% majority.
Should You Quit Your Day Job?
The next question that often comes up is whether or not to quit your day job and devote all of your time to trading. If you make more money trading than you could in any other profession, the answer would be yes. But for most, this is totally unrealistic and it always makes sense to treat your day-job as your primary source of income, and trading as a secondary source. Luckily, there are plenty of strategies that allow you to do both at the same time. This generally means you should avoid scalping strategies and instead focus on the longer term opportunities.
Having Enough Money to Trade
Many people disagree about the amount of money you need to trade successfully. But the reality is that the answer is $0. Of course, this means using a demo account and removing the possibility of earning real money. But many trading brokers allow you to open an account with no minimum balance, and to take trade sizes that are as small as $1. What you need to understand is that your account should be traded in terms of percentages, not by the number of Dollars. The same strategies can be implemented if your trading account is $1 million or $100.
Last, never trade for your kid’s college money, or anything else that is considered a life essential. No trading strategy is ever a guarantee, so banking on trading for life necessities is always a mistake. Trading should always be done using risk capital (money that you can afford to lose).
Tales from the Depths: My Worst Trading Day
My worst trading day came when I was still an undergraduate in college, studying a non-financial topic (History). I had essentially no knowledge of what moved markets but this did not discourage me from the prospect of quick riches. I spent a few days demo trading, and made a few hundred virtual Dollars with what seemed to be relative ease, so I opened a small trading account with about $2,500 thinking this lucky streak would continue. And, for a few days, it did. Even though I opened positions randomly (with no attempt at technical or fundamental analysis) I was up about $700 in the early parts of the week. Not bad for a $2,500 investment.
So, I opened more and more positions, and used more and more leverage thinking I couldn’t lose. Little did I know, a major economic release was scheduled for the end of the week — and that the market was about to become highly volatile. As Friday rolled around, I was in front of my trading platform when it happened — the Non Farm Payrolls report (a key data release) showed a massive downside surprise and all my positions closed for a loss. I was exposed to the market with massive leverage (increasing my position sizes) and the ultimate result was that I wiped out about 70% of my account balance — in a matter of minutes. I did not even think that was possible when I started.
Moral of the story: Be prepared for important economic data, use little or no leverage, and avoid these negative surprises.
Trading for a living is possible for anyone, but unlikely for most people. Instead, what you should be focusing on is developing a conservative strategy that works consistently — and that will earn money for you over the long term. You will never be able to turn a $500 account into a $50,000 acount in a week, a month, or even a year. So it is important to start with the right set of expectations that are actually achievable in real markets.
Some well-known articles and videos on the subject of Trading for a Living can be found below: