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Money management

Why do I need Money Management?


Too many traders fall into the trap of thinking that successful trading is only about what trades are placed. They neglect the large part that money management strategies play in the long term for their profitability. They also easily forget how common and how damaging losing streaks are. They are in fact statistically quite likely at some stage or another.




For example, for a trader that starts off with $1,000, he may decide that $100 is a reasonable starting trade size. However, if the trader hits a losing streak of 5 trades he could already be down to $500 or 50%. At this stage it is also quite difficult to recover as most traders will tell you. This is because you will naturally have to reduce your trade size to reflect reduced capital. This will require more than 5 winning trades to recover.



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A successful money management strategy relies on two key disciplines. Firstly, a trader has to be comfortable with taking a certain degree of risk. This is because reward mostly comes with risk and there are no “risk free” returns in anything. Secondly, the trader has to be well disciplined and not allow emotion to cloud his or her thinking


Find the Optimal Trade Size


Before you can start trading and trying particular binary options money management strategies, you have to be decide on the right trade size. This should be closely related to the capital that you have in your account


Most respectable traders will say that the trade size should be within the range of 1-4% of the capital in the account. Trade size is also closely linked to your win rate on the binary options. More particularly, the higher your win rate the larger the trade sizes that you can take on.


Taking a look at a rough example, if you have a win rate of 65% that means that you will win on average 60 trades out of 100 and lose 40 on average. Therefore, a prudent trader would not bet more than 2.5% on each trade which is 100%/40. Naturally, this is something that the trader can tweak according to the criteria below.




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