5 Easy Ways to Reduce the Risk in Binary Options Trading
looking for an edge on the market? Want to reduce your risk in trading binary options? Think signals are the way to go? The top 5 methods to reduce risk are not what you think!
Reducing risk is the name of the game when it comes to trading regardless of the type. It doesn’t matter if you are trading Forex, stocks, commodities or binary options. The more risk you take, the more and bigger your losses, the less risk you take the fewer and smaller you wins. You have to take risk, otherwise there is no payout but if the risk is to high and the chance of reward too low you might as well just give your money away. The key is to balance risks versus rewards so you win more than you lose. These are my five top tips to reducing your risks while giving yourself the opportunity to make some big money.
Tip #1 – It’s About Time you Know how to Avoid Scams
The number one way to limit your risks with binary options is to avoid scams. We’ve come a long way from the early days of the industry but unfortunately for us scams are still prevalent. Like anyone who practices their craft the scammers are getting better and better at hiding their true intent. First step here is to choose a good broker. I suggest finding a broker independently of any service, signals or manager. Regulation is good but not always a guarantee. Shady brokers can get regulated and scam within the rules, top notch brokers can operate outside the jurisdiction of regulators, it really just depends on the broker. Any broker offered by a service provider stands a chance of being shady although it is not a guarantee, all brokers use affiliate marketing as part of their advertising strategy so could be seen on a scam website as easily as on a totally honest one. Getting the most information you can, checking up on claims, reading reviews and talking to actual users is the only way to be sure.
Tip #2 – Choose your Strategy
My next tip starts to get down to the meat of the matter, you have to use strategy. It doesn’t matter which one (refer back to tip #1) so long as you can trust it. Trusting a strategy does not mean it is guaranteed to bring wild success overnight. No strategy can be trusted to give 100% accurate results, everybody loses sometime, in my opinion those with the biggest claims are also the biggest frauds. Trusting the strategy means that it is a consistent method of entering and exiting the market with clear and easy to understand rules, and no strings attached. Strategies can be found all over the internet, some are freely given and some are for sale. One method many scammers use is to offer free strategies, so long as you deposit money with their trusted broker, so watch out for that. Once you deposit they have what they want with no guarantee for your success. The best strategies are well known and based on commonly found indicators such as those we review here on BOTS.
Tip #3 – Reality Check!
Stick to reality. Removing fear and greed from your trading is a not so simple way to remove excessive risk from your trading. Honestly, binary options and trading financial instruments of any kind is not a get rich quick scheme. Sticking to the reality that trading is hard and that success is measured over the long term is the only way. If you think that this is your chance to strike it big in a short time think again. Trying to run up your account with wild trading will only lead to frustration and loss as you are pushed into making bad trades by your emotions. Psychology, your own and the markets, is an important part of trading and should not be overlooked.
Tip #4 – Handle Your Money Right
Money management and trading systems may be the biggest limiters of risk in terms of actual dollar amounts. Money management limits the amount of risk taken on each trade and its exposure to your account, trading systems dictate when, how and how often you trade. Most successful traders stick to using a percent rule for their trades, all trades are X%. This means when the account grows your trade size grows and when you take some losses your trade size shrinks, maximizing potential profits and limiting risk. I personally use the 3%, all my trades are 3% of my account. My system is that I make 5 trades in the Geek Account every Monday morning just before and as the US session is opening using a mix of technical and fundamental analysis. By limiting your trades to a set amount you remove the risk of trading too large an amount, an amount that could wipe you out of the market. The system means I don’t trade too often, or at the wrong time on a whim.
Tip #5 – Never Stop Learning
Educate and speculate. Trading the market is not gambling if you do it right and that means education. Following my first four tips are important but mean nothing without education. The other tips limit your chance of loss due to mistake, educating yourself reduces your chances of making that mistake and increases the chance of reward. The best place I know to get started is in the binary options School section here on BOTS.
The Bottom Line – Step Up Your Game to Reduce Risk
Reducing risk is important but it can never be completely removed. If so then anyone could walk right up to the market and make a million bucks. What we can do is limit risk so that we don’t wipe ourselves out of the market. The thing to remember that limiting your risk is not enough, it goes hand in hand with education in a way like the chicken and the egg, which one came first? Education not only helps you reduce your risk and learn about managing risks it also increases your chance of reward by reducing your chances of making mistakes. As circular as this sounds it really does work, I hope I’ve made my point clear.