Binary Options Profit Potential – Strict Money Management
Calculating potential profit and losses on most financial instruments is considered to be a pretty daunting task. This is due to factors such as broker fees, commissions and price movement just to mention a few. Binary options trading on the other hand is much simpler, allowing us to calculate a potential future profit prediction. This makes our lives a lot easier without the added stress. Although there are a lot of sceptics out there claiming one cannot produce consistent profits due to the risk to reward factor associated with binaries. Most likely a valid argument when looking at how most people trade and manage their accounts.
Break Even Ration Based On ITM Payout
Different assets offer different in-the-money payouts. As you can see the highest required accuracy to break even is 58.8% due to the lower 70% ITM pay out. Although most Forex pairs fall within the 73 – 78% range. Certainly a hefty payout considering most trades can be entered 5 minutes before the option expires.
I am sure you can imagine how important money management and discipline is. That’s what makes or break a binary options trader. Short expiries and high payouts can be quite tempting, causing traders to become trigger happy and over aggressive. This is probably one of the worst habits to pick up while trading.
Your 12 Month Profit Potential
If you can stick to such a type money management plan you truly have a great future in binary options trading! This is really a fairly easy achievable goal. You always need to set realistic goals thus not disappointing yourself if you don’t reach it. This helps eliminate greed and revenge trading. I’m sure you know what I am talking about.
A quick look into the money management used
When starting out its always wise to start off with a realistic amount such as $500 used in our profit calculation example. There is no shame in starting slow, building your way to the top. As you can see your $500 deposit can grow to over $1.5 million in a 12 month period. That is if you follow your trading plan to a tea. I don’t know of any other trading opportunity that can give you such a massive gain in capital over such a short period of time!
Amount Risked Per Trade
Once again we used a very realistic 5% which fits in perfect with the broker’s minimum trade amount. Depending on your account balance you can always risk much less. There is no need to risk more than $25 on a given trade when starting out. As your account balance growths so does your risk per trade. In all honesty it comes down to your own risk appetite. It’s utterly important to stick to the same amount per trade throughout the entire trading month before adapting to your account balance. There is no need to increase your risk due to being over confident, as that might just leave you with a zero account balance sooner than later.
This is arguably the most important factor leading you either to success or failure. A 75% accuracy is more than achievable if, and only if, you stick to the high probability setups! ITM accuracy goes hand on hand with the amount of trades executed on a daily basis.
Daily Trade Execution
In binary options less is more. You read correct. Think about it for a sec. Let’s do the math: 1 win 0 loss = 75% gain. 2 wins 1 loss = 50% gain. 3 wins 1 loss = 125% gain. This is based on a 75% payout which is common with most Forex pairs. We can clearly see that 1 loss can set you back quite a bit. You might be asking what the ideal amount of daily trades should be. The answer is simple. If there is no A+ setups you should not be placing any trades! If 10 good opportunities presents itself then you should might taking 10. Quality over Quantity – period.
Getting to the point
A trader without capital can’t trade. Protecting your capital is thus your number one priority. This can only be achieved when you know when to sit back and watch rather than getting burned by low probability setups. Remember; a smart trader will always be ahead of the greedy trader!
If you have questions about joining the Day Trading Forex Live recommended Binary Options Broker or need more information about the FREE Skype room when joining TopOption please feel free to contact Allen Henn. He is a current member and the DTFL Binary Options host. He will answer any questions and give you an idea of what the service involves and support we provide.
If you have any questions about the FREE Binary Options education when you sign up with TopOption you can contact Allen Henn at firstname.lastname@example.org to set up a time for a conversation over the phone if you like or call his SA phone line at 0836564432 or Skype at Allen.Henn