DISCLAIMER AND IMPORTANT INFO ABOUT 24OPTION! Binary options involve risk and you can lose all your invested capital. Payout rates are all based on the assumption you make a successful trade.
Is there a 24option minimum investment amount? The short answer to that question would be YES. There is one, and it has been set to $24, probably to keep within the theme of the 24option site. Considering that the industry-average in this respect is $25, that is not a particularly steep or prohibitive requirement either. It is true that there are sites out there that feature minimums of $1 on this respect, but most seem to be set on the $25 mark.
What is there to know about the 24option minimum investment?
First of all: it is NOT the minimum required deposit. The minimums on deposits are usually $250, and that goes for 24option too, who are apparently not bound by thematic considerations in this respect.
The minimum on investments is the minimum amount of money required to be traded on every option that one takes. If you trade a Call/Put one for instance, on the EUR/USD, you will have to put up at least $24.
What is the significance of this deposit though? Just about everything tied to investment amounts has to do with capital management. The less money one invests on a single trade, the smaller the variance one will have to deal with in case of losing trades, which are guaranteed to happen. Jumping into trading on a $250 balance, and making two $100 trades is not an ideal MO. This way, the slightest variance will put one out of business, and variance will happen, regardless of the strategy/trading system that one is using. The best way to go about it is to make the size of individual investments no bigger than about 5% of one’s balance. This is a time-honored Goldilocks-zone for such investments, and its role is to tide the trader through periods of losses. Having a $1 minimum on investments doesn’t necessarily mean that one will always post $1 on every trade he/she takes. Far from it. It just leaves room to flexibility in regards to capital-management.
Traders who really know what they’re doing, have a thorough money-management plan, which is linked directly to the size of their balance. The more money they have, the more they can afford to invest while sticking to the same strategy.
How capital management works
The primary role of capital management is to keep the trader “in the game”, so he can put the edges he secures through his trading strategy, to use. Its secondary role is to optimize the flow of profits. As such, it is clear that capital management is an integral part of the binary option long-term success recipe. The first step is obviously to find and learn to use a strategy which offers a definitive long-term edge. In this regard, the trader needs to overcome payout rates of 70-80%, which translate into 30-20% handicaps for the trader. What this means is that one has to win 70-80% of his/her trades, to make sure there’s a profit to work with. The problem is that even the best trading system can be sabotaged by poor money management. If one masters a system which offers an 80% ITM rate, 20% of the time, losses will still occur. This is enough to upset the balance and to send the trader into bankruptcy if he doesn’t use proper capital management. If he manages to stay in the game though, his system guarantees that he will be profitable in the long-run.
Why brokers use minimums on investments?
For a broker, it is important that its customer makes a sizeable deposit. That’s what it makes its money off of, after all. There’s no way around that. According to the above detailed capital management principles, the larger the size of one’s investment, the larger deposit one will have to make.
None of this is compulsory of course. Everyone can go about his/her investments they way he/she sees it fit. These principles are however the results of long-term trial and error, and they are the mathematically correct model to take on the problem.
Would it be better for 24option to feature $1 investment minimums? From the traders’ perspective, it certainly would. From the perspective of the broker though, it may not make much sense.
Trading binary options involves substantial risk and may lead to loss of all invested capital.