8 Resolutions For Managing Your Money
What is your money management plan for binary options trading? Do you have a certain amount that you invest on each of your trades, or do you just go with whatever feels right in the moment? Have you sometimes found yourself down 20-30% because you bet big and lost, and then end up wondering how it happened?
There are so many aspects of binary options trading that you need to master before you can become a truly profitable trader, but one of the big three (along with a trading method and trader psychology) is money management.
Here are 8 New Year’s resolutions for 2016 that will help you to leverage that money in your trading account to its maximum benefit.
Actually get a money management plan.
If you do not have a money management plan at all, then this is your top priority for 2016! It is okay to admit to yourself you have been less than responsible with your funds—most traders start out that way. Binary options trading is promoted as something which is effortless to win at, and a lot of novices start out under the impression that it will be easy for them to make money.
Actually making consistent money from trading is anything but easy, as by now you have probably discovered for yourself. A money management plan will help you to minimize your losses and keep them within predictable limits. It will also help you to start trading more honestly.
Basically, if you do not have a plan, you might end up in the red even if you have a trading method which is giving you a solid win percentage.
Stop risking random amounts of money.
Let me get into that in a little more detail! Imagine that you have a trading system which wins 78% of the time. That should be enough to make you profitable—if all of your trades are the same size. But what if you sometimes risk 2% of your account, and other times you risk 10%?
Imagine you place five winning trades in a row, risking 2% of your account each time. Nice, you are up to at least 10%! But now you see a trade which looks really enticing, and you are feeling super confident since you are on a winning streak. You decide to put down 10%. You just won five in a row after all, so what are the odds that you are going to lose the next one?
And then you do lose it. You blow virtually all the winnings you just made with the previous five trades, all with just one trade. You can see how a high win percentage did nothing to actually put money in your bankroll, because your inconsistent betting sizes offset all your winning trades with one dire blow. Now if you had been betting 2% consistently, you would still be in the black, and doing quite well!
The other problem I cannot emphasize enough with random betting sizes is the implication that there are some trades you feel really confident in and others you do not. Unless a setup fulfills all your trading method entry criteria beautifully, you simply should not take it. It isn’t that you should be wagering less on it. You just should be avoiding it altogether. Otherwise you are breaking your system rules and lying to yourself about it.
Come up with consistent rules for using Double Up, Rollover, and Early Close.
Double Up, Rollover, and Early Close are the three most common tools that binary options sites provide to traders to manage their expiry times and investment amounts. Double Up of course means doubling up on your investment. Rollover allows you to stay in your trade longer, but usually requires again that you increase your risk. Early Close lets you get out early. On some sites you can do this for a partial loss, a partial profit, or both.
Since these tools not only influence when you exit a trade, but also what level of risk exposure you are at, you need to be mindful of how you use them. A lot of traders completely forget what they are really doing when they rollover a trade. They just think, “I need to stay in this trade a little longer for it to win,” but they forget that there is a higher price if the trade loses anyway. Then suddenly they wonder why they are 4% down instead of 2% down.
It is also important to remember if you regularly are exiting trades at a partial profit, you may be racking up 1% wins and 2% losses. After a while, this may take a toll on your profitability. It is up to you to run tests and come up with exit rules which will maximize your profits.
Think twice before accepting bonuses.
Bonuses are among the biggest draws for new binary options traders in particular. Who doesn’t want to get $500 or $1,000 free? Match deposit bonuses often range to as much as 100% of your initial deposit. If you happen to have accounts at any online casinos or sportsbooks, you know that 100% is huge compared to what you would typically be offered anywhere else.
I always urge caution when it comes to accepting bonuses. If you are trading mostly for fun and you are not too concerned about making money, then by all means, take a bonus if it ramps up the excitement for you—but be forewarned that you will blow through your bankroll faster and may be out of the game again before it even seems like it has gotten started.
Imagine for example that you are depositing $500 in your trading account. You are given an additional $500 as a bonus to trade with, for a total of $1,000 in your account. You decide to invest 2% on every trade, a nice conservative amount. That comes out to $20. But here is the thing. $20 is 4% of $500, the amount you really have to trade with. You do not own that bonus amount of $500 until you meet the turnover requirement, which is typically going to be 30 to 50 times the amount of money in your account.
On top of that, you cannot withdraw the bonus money and sometimes even your money (or winnings) if you have not yet met that turnover requirement. Managing your bankroll is not just about preventing losses and maximizing wins; it is also about keeping your money accessible.
Do not invest money in trading you cannot afford to lose.
For that matter, how do you decide how much money to put into your trading account to begin with? When do you add to your account or withdraw from it, and what rules govern your transactions?
If you take money from your account all the time, you will never grow that account. And if you deposit money you cannot afford to lose in your account, you may sometimes find yourself running financially dry when you need to pay your bills.
This puts a lot of new traders in a catch-22, because you know you need to deposit more than $200 if you expect to move along at a reasonable clip. But if you are on a low income, depositing more than that may simply result in you withdrawing it again along with your winnings all the time.
Unfortunately, there is really no great answer here. It all comes down to patience. If you have to start really small, do it. Look at this as a time in your life when you do not have a lot to lose, but you have experience and knowledge to gain. It may be a while before you can seriously fund your account, but you will at least know what you are doing by that time, and then you will be ready to rock.
If you are losing more than you expect to, be willing to switch back to demo.
Another aspect of money management is sometimes just knowing when you need to get your money off the line. If you are investing real money and you are losing a lot of trades, especially if you do not have a clue what is going on, managing your money properly at that point is about knowing when to quit.
That does not mean that you are quitting permanently, just that you are going back to testing mode for a while. After all, something is going wrong with your trading. It may be with your method, or it could be something else altogether. You may just need to adjust something in your thinking or timing. Whatever the case may be, you do not want to risk real money unless you know exactly what you are doing.
So figure that out again, and then you can get back to trading live. When you do, another money management recommendation I would make is to invest only half of what you normally would. So instead of investing 2% on each trade, invest 1%, and so on.
Only invest around 2% of your account on your trades.
That brings me to another resolution which you should make this year if you currently invest large percentages of your trading account. It is common when you are starting out to think that you will be okay if you are investing 5-10% of your account on trades. You may even think that is conservative (I have known very smart people who believed that).
But it really is still quite high. I would say that 5% should be the absolute max at which you cap your trades, and would advise an amount closer to 2-3%. If you are impatient to succeed, it can be really hard to find the self-discipline to make this resolution, but if you do, you will find it pays off in terms of the security it offers you. You will end up encountering fewer major setbacks on the road to success. You will also avoid some of the emotional whipsaws that come with losing large amounts of money.
There is no reason you should ever find yourself 10% down after a single trade.
Use a broker who offers friendly withdrawal policies.
Earlier I talked about bonuses, turnover requirements, and withdrawal policies a bit. I want to discuss that point a bit more. Does your current broker have policies which look a bit like these?
You can only withdraw if you are able to pull out a minimum of $100 at a time from your account.
You get one free withdrawal per month. After that you need to pay a $25 or 20% fee, whichever is greater.
You may only withdraw a maximum of three times per month.
Policies like these are common, but they make it tricky to get at your money when you need it. What if you do have an emergency and need to access your money right away? Or what if you just want to switch to another broker? The reasons for accessing your money are your own business, but you should have a right to do it quickly and with ease.
Imagine if instead, you had a broker with policies like these:
The minimum withdrawal threshold is just $50.
There are no fees for withdrawals, ever.
You can withdraw money from your account as many times per month as you wish.
Wouldn’t that make you feel like you could heave a sigh of relief? You would never need to worry about whether you can withdraw when you need to, or how much it will cost you just to get your money. If you are dealing with a broker with unfair policies this year, make it your resolution to transition to a broker that will treat you right. Our brokers list is a great place to start your search.
If you make these resolutions this year to manage your money right, you will put yourself on the path to binary options success!
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