Minimum Deposit Means Minimum Risk? Ask the Geek

The minimum deposit for most binary options brokers is very low. This is one of the reasons why binary is such an attractive way for people to trade. Does a low minimum deposit, or a low deposit in general, mean less risk in your account?


Does a low deposit mean lower risk in your account? This is a valid question. What does it mean when you choose to make a low deposit or the minimum deposit and how does that affect risk in your account? At face value I would have to say that yes, using a low deposit does mean that there is less risk in your account, but it’s relative to how you trade. Think about it like this, a trader with an account of $10,000 has much more potential risk in their account than someone making the minimum deposit because there is the possibility of losing $10,000 versus only $200. But does this truly mean there is less risk in the smaller account, not really. It all comes down to the individual traders and how they approach the market. 



How Do You View Your Account

The best thing I can recommend is to stop thinking about your account in terms of dollar value. It doesn’t matter if your account is $200 or $20,0000, you should be thinking about your account in terms of percents. No matter what your balance is it is always 100% of your balance. Using this perspective risk can be quantified in a way that is easy to manage. Most successful traders will only risk losing a small percentage of their account on any one trade. This is known as money management and position sizing. The typical trader will only risk in the range of 1-5% on any trade which means that any one losing trade can only lose 1%, 2% or 3% of the total account. Now let’s look back at the example above. One trader has an account worth $10,000 and one trader has an account worth $200. The trader with the smaller account is making the minimum trade of $5, or 2.5%, on each trade. The other trader, the one with the $10,000 account, is trading positions haphazardly. First one trade is $500, the next is $1,000 and then to try to recoup losses another is made for $3,000 or 30% of the accounts value. You tell me whose account is carrying more risk.


Even with a good money management system you still have to ask yourself one question. Can you afford to lose $200? If you can’t then depositing any amount is risky. Trading binary is not a game even though some brokers might make you think so. This is real money and trading is hard. I don’t care what the ads tell you it is not likely you are going to be able to parlay a $200 minimum deposit into thousands of dollars in only a few days. You are far more likely to lose everything by following one of these scams than you are to break even much less profit. If you can’t pay the rent, if you can’t buy groceries or gas for you car then even a $50 deposit is too risky for you.



What Is The Minimum Deposit You Should Make

Using the minimum deposit definitely does not mean that you have lower risk. It all comes down to if you can afford the minimum and how you trade. You may not have the money, in that case even the minimum is too risky. You may have plenty of money but no discipline, another risky scenario. However, you may have the money to spare and the discipline to trade. In that case taking some risk is a good thing. You have to take risks in order to make money. The key is knowing what is a good risk and what is a bad risk. So, what is the minimum deposit you should make? What you can afford. If you can not afford to lose the money in the first place you should definitely not spend it trading binary options. You wouldn’t spend your rent money going to the casino would you? If you only have $200 that you can truly use that’s OK. There are brokers that can accommodate you. You just need to figure out what your money management is going to be, determine your trading rules, develop a strategy and then stick to it. It will surprise you how quickly $200 can turn into $2,000, and that $2,000 into $20,000. It will take time and dedication but it can be done. We have a great series of articles about the type of traders and what makes one more or less risky than the other. It called The Sucker, The Nice Guy and The Shark.



Further Reading on Minimum Accounts:


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