Binary options are highly profitable investments that can help you make profits of up to 500 percent within only a few minutes. While the potential of binary options is unquestioned, critics claim that they are a too risky. Make sure to check these claim thoroughly before passing on a good investment opportunity such as binary options. This article will show you how to trade binary options with low risk.
1. How to Trade Binary Options with Low Risk – Never invest all you money
Binary options work on a simple assumption: If you win your option, you will receive a pre-defined payout. If you lose your option, you lose the entire amount you invested.
The pre-defined payout largely depends on the option type you use. With touch options, you can receive payouts of up to 500 percent. That means, if you win your option, you get your invested money plus 500 percent the invested amount back. While the high payout is attractive, you should never allow it to trick you into investing too much money on a single trade.
The biggest mistake new traders make is to invest too much money on a single trade. If you invest all your available capital, you might win a few trades and make a huge profit. Sooner or later, however, you will lose a trade and with it all your money. Therefore, investing too much money on a single trade is the safest way to bankruptcy.
Continue reading below the table about how to trade binary options with low risk.
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2. Understand that binary options are a numbers game
So let’s find out, how to trade binary options with low risk: To become a successful binary options trader, you have to think in percentages. You will never win all of your trades. Therefore, that cannot be the goal. Luckily, binary options offer high enough payouts that you do not need to win all of your trades. In fact, with some strategies, you only need to win a few trades to make a lot of money.
A trader investing in touch options, for example, can easily make money with winning only 30 percent of his trades. Let us assume that this trader invest with an average payout of 400 percent. In that case, he would need to win 25 percent of his trades to end up with the same amount he started with after 100 trades.
Any winning percentage over 25 percent would make this trader money. Should he be able to win one of three investments he makes, he would be able to make a nice profit at the end of the month. Of course, this approach requires the trader to invest only a part of his total capital. The same applies to your trading. Instead of risking everything with a single trade, you have to invest only a small part of your capital.
3. Make sure the numbers are on your side
Once you have understood that binary options are a numbers game, you have taken the biggest step to eliminating risk from your trading. Then, you can reduce investing in binary options into a simple equation that will tell you whether you will make money or not. All you have to do is to make sure that you come out on the right side of this equation. The tools that will help you get there are a trading strategy, a trading diary, and money management.
A trading strategy will make sure that you do make the same decision in the same situation every time, thereby keeping your winning percentage constant. A trading diary will help you realize the flaws in your trading. Money management will make sure that you never invest more than you can handle.
If you have these three basic elements in place and understand how to use them, you can make sure your trading adheres to the basic equation we defined above. After a number of trades you will know whether you current winning percentage is high enough or not.
If your current winning percentage is too low, you have to improve your strategy until it is high enough. If your current winning percentage is high enough, however, you have successfully eliminated risk from your trading. Now you know that you will make money at the end of the month.