Money Management Strategies

So, you have read up on the basics of binary options trading and now you are ready to become a binary options trader. You can get started with some of our favorite brokers with as little as $100. If you have found $100 you can set aside for trading, you can certainly get started, but it is best to learn a little more about money management first. Money management is one of the three key ingredients to successful binary options trading, the other two being discipline and strategy.

What is money management? Simply put, it is exactly what it sounds like. Money management refers to the techniques you use to consistently and profitably manage your trade sizes. It also may take into account the actions you choose to take while you are in a trading, like closing out early, doubling up, or rolling over. There are other aspects involved as well, such as when you add to your account and when you withdraw, and also how much you deposit to begin with.

Why Start With More Than $100?

100 dollar bill

Starting with $100 can be done but we suggest $250-$500 minimum.

Before you get discouraged here, do not think I am saying that you need to be rich to trade; you don’t. The low entry barriers are one of the great things about binary options trading online. But $100 is not the best amount to start with. I would recommend investing $250-$500 to get started with, at a minimum. If you have more to trade with than that, excellent. Get started with more, if you feel comfortable with that.

Here is why I think you want to get started with a little more than the minimum. Look carefully at the deposit and withdrawal terms and conditions at the broker you are signing up with. What is the minimum withdrawal limit? It is often set at $100, which is identical to the $100 you were planning on depositing to get started with. Unless you want to make it difficult to get your money out of your account, it is best to start with more in your account to begin with. If you invest $100 into your account and lose even a single tiny trade, you cannot withdraw your money if you want to. If however you invest $250 into your trading account and then you lose a small, conservative trade, it is no big deal. You can still withdraw everything you have left at any time you want since it is higher than the withdrawal limit. Of course, hopefully you will go onto a profitable trading career, but this is all about your comfort level.

Trade Sizes

The main reason I suggest you invest $250-$500 at a minimum has to do with trade sizes. There is one binary options broker which allows you to trade with as little as $20 and actually place $1 trades, and that is IQ Option As you might imagine, trading $1 has some benefits and drawbacks. The benefit is that it is like an extended testing period with minimal risk. The drawback of course is that you are not going to make a lot of money trading $1, just as you are not going to lose a lot.

Most binary options brokers have a minimum trade size closer to $10-$25. For 60 Second trades, this numbers may be closer to $5. These are relatively low amounts, and you still will not make (or lose) money very quickly if you trade the minimum, but even these low minimum constrain you somewhat when it comes to percentages.

What percentage of your bankroll are you planning to invest on each of your trades? This is a key money management question. Were you planning to just play it by ear, and spend whatever feels “right” for each trade? Are you going to invest more on the trades you feel more confident about and less on those you do not? What percentage of your account seems reasonable? 10%? 20%? 50%, on a trade that looks well worth it?

What if I told you all of those percentages are too high? Even 10% is pretty high. Think about it: it would take a losing streak of just 10 trades in a row to wipe out your account, regardless of starting size. Five percent is a much more reasonable percentage. It would take 20 losing trades in a row to wipe out your account in that case. Two-and-a-half percent is an even better investment amount, though if you are starting out with just a couple hundred dollars, you would be unable to trade this little, except at IQ Option. Plus, you would not be making money at a reasonable rate.

Because of all these factors and drawbacks, my main recommendation is to start out with $500, and invest 5 - 10% of your account. That would translate to $25-$50 on each trade. The latter works out pretty nicely. If you invest $500, and aim to trade 5% of your account on your trades, that means you can actually trade the minimum if it is set to $25, and you are still following sound money management principles. You will not be profiting all that fast, but at least you are giving yourself plenty of buffer space for losing trades, and moreover, the money still isn’t bad if you are trading relatively often (and winning most of the time, of course). And if you do lose a few trades and you decide you want to withdraw all your money, there is no problem, even if a broker sets a minimum withdrawal limit of $100-$200.

Why You Should Always Invest The Same Percentage

Why should you always invest the same percentage of your account on your binary options trades? Why not invest more on some trades and less on others? After all, if you’ve found a really good trade setup, why wouldn’t you want to invest more on it than you would on the others?

In a way, this is a bit of a trick question. The reason being that if you do not have a less than excellent setup, you do not want to take it in the first place. So you would always want to invest the same amount of money on all of your trades because you should only be taking setups you are highly confident in. And even then, you should still only be investing 2.5-5% of your account on your trades. The nice thing about becoming a profitable trader however is that as your account grows, that small percentage starts to represent a larger and larger amount of money. And using conservative money management techniques will ultimately help you to get there faster!

Keep Your Accounts Separate

It can be tempting to withdraw from your trading account to pay your bills each month, or to withdraw from the money you should be using to pay your bills and other important expenses to fund your trading account. Both of these behaviors are ultimately detrimental. If you are doing the first one, it implies that you have too much money invested in trading to begin with, and that you are already investing more than you can afford to. Get your financial house in order first, and then trade, or just trade with less money to begin with. Practicing with smaller trades or a demo account never hurts. You will be that much more capable when you do start trading with more money.

Details on demo trading can be found here

If you are doing the latter and spending money trading you should be spending on important bills, you are engaged in addictive gambling behavior. That kind of behavior will ultimately harm you, your family, and others in your life. Always play responsibly, even if you are trading for fun. Money management will help you to get more out of your bankroll, so even if you are not too serious about your trading, you will find it benefits you. And if you do want to trade for a living, money management is an essential part of your trading plan. Without it you will not get far, but with it, you can pave the road to financial success.

Any efficient winning strategy in binary options must also contain money management. The money management part in binary options is not a strategy that will help you predict the movement of certain assets. It’s a strategy that will help you manage your assets well in order to achieve your desired profitability ratio.

Money management is generally ignored by lots of binary options traders. This is because they believe that it’s enough to be able to predict the movement of the assets and everything else will follow automatically after this. However, if you don’t have the necessary discipline in order to manage your finances you might actually end up losing money rather than winning.

A good binary options money management strategy basically has two main parts, which are taking some risks as well as having the discipline to abide to the rules that you have proposed in your money management strategy.

There are a lot of binary options money management strategies available. Below in this article we tried to outline most of these strategies. Based on your trading style and goals you may decide yourself which strategy you’d like to use.

Most Efficient Money Management Strategies

First of all we’d like to reiterate the issue about discipline. Sure, you will be trading with your own money and as such you can do whatever you want, however if you’re really committed towards making money in binary options then you will have to have discipline and follow the proposed strategies to the letter.

Below we tried to compile a list of the best binary options money management strategies. We won’t tell you which strategy to use, however after reading the below descriptions you will be easily able to find the strategy that best fits your needs.

The below strategies focus on establishing various minimum winning or maximum losing requirements and limits. The idea is that once you reach the proposed limits you will have to stop trading no matter how much money you have won or how much money you have lost.

Number of wins & number of losses

This is one of the most common money management strategies in binary options. If you use this strategy, you will have to propose yourself a daily total number of wins or loses limit. Once you reach one of these limits you will immediately stop trading.

For example, you may propose to win a maximum of 10 times per day. Once you have reached this limit you will stop trading. This is because it may happen that you may get caught up in the heat and enthusiasm and may become reckless in the process of purchasing new contracts.

This is a common psychological reaction among financial traders and you should not underestimate it.

Likewise, you should also propose a maximum loss requirement. If, for example, you have lost 10 trades today you decide to stop no matter what. This is because if you just propose a maximum winning requirement you may as well lose 100 trades before you win 10 (usually never happens but we overdramatized it for the sake of the example).

This way if you have lost 10 times during the day, you will stop trading no matter what. This will prevent you from running after your money, something that’s also a common psychological phenomenon observed among financial traders.

Percentage of losses

This is basically the same as the above-mentioned example only in percentages. However, this money management strategy is more permissive because it won’t limit you according to the number of trades won.

Instead, this strategy calls for you to stop immediately in case a certain percentage of your trades are unsuccessful. For example, you may propose a percentage of 20%. If you’re good, you may only reach this percentage after 100 trades or never at all. However, you may as well reach this percentage after 10 trades after which you should stop for the day.

Amount of wins & amount of losses

This strategy is also very similar to the first one with the only difference being that you propose to win a maximum of $X per day and not lose more than $Y per day. If you reach one of these limits, you should stop immediately.

For example, you may propose to win a maximum of $100 per day and not to lose a maximum of $50 per day. Once one of these limits is reached, you should stop trading immediately.

We know it’s hard to stop when you have unfortunately lost but please do not run after your money, it will make things worse since most people are very emotional in these situations. Trading online is about being rational and objective.

Number of trades

This strategy requires you to stop trading after you have executed a certain number of trades regardless of the outcome of those trades. You can also combine this strategy with any of the above.

Winning ratio

And the last binary options money management tip is to watch your winning ratio. If this winning ratio drops below a certain level, such as 80%, you should stop trading. You will have to calculate your winning ratio after each trade you execute. The best thing to do is to use an excel file for this purpose.

Risk Level Strategies

Now you might be asking what the best percentages and ratios are in the case of the above-mentioned strategies. Like, what’s the best minimum winning ratio, for example. This will depend on the risk you are willing to take.

Below we have established the recommended rates and percentages for the above-mentioned strategies taking in consideration the risk level you are willing to take.

Low risk strategy

A low risk binary options money management strategy is for those who do not wish to take high risks. This will result in fewer profits but generally few or no losses at all.

Number of wins & number of losses

- Stop trading after 10 wins

- Stop trading after 4 losses

Percentage of losses

- Stop trading after 8% losses

Amount of wins & amount of losses

- Stop trading after $50 profits

- Stop trading after $25 losses

Winning ratio

- Stop trading if the winning ratio becomes lower than 80%

Number of trades

- Stop after 10 trades

Medium risk strategy

The medium risk money management strategy is for those who would like to earn some extra money but still aren’t 100% sure if they want to go all in.

Number of wins & number of losses

- Stop after 30 wins

- Stop after 10 losses

Percentage of losses

- Stop after losing 15% of your contracts

Amount of wins & amount of losses

- Stop after winning $150 in a session

- Stop after losing $50

Winning ratio

- Stop if your winning ratio becomes less than 75%

Number of trades

- Stop after 50 trades

High risk strategy

The high risk strategy is for those who are not afraid to lose large sums of money with the prospect of making huge profits fast. This risk assessment binary options strategy is only recommended to experts.

In this case, we’ll be allowing for a bit more flexibility and have defined the limits a bit loose (defined by the + sign).

Number of wins & number of losses

- Stop after 100+ wins

- Stop after 30 losses

Percentage of losses

- Stop if you lose 25% of your trades

Amount of wins & amount of losses

- You are already an expert, so you do not need a maximum win amount limit.

- However, stop if you lose more than $100 in a session

Winning ratio

- Stop if your winning ratio drops below 65%.

Number of trades

- You can trade as much as you want, however in this case choose another limit from the ones mentioned above.

General Tips and Guidelines

There are also some general tips and guidelines when it comes to the money management strategies mentioned above. The first is that you may also naturally use different numbers and percentages than the ones listed above (but still in the range of the ones mentioned by us.)

In the beginning and if you are a newcomer you should still strongly consider using the limits written above in the case of the low risk strategy though. Later on you may establish your own limits by slightly modifying the ones mentioned by us.

However, no matter what kinds of limits you use you should ALWAYS have the discipline to stick to those limits no matter what happens. This is one of the most important things to keep in mind.

Another suggestion is that you may combine two or more of the above-mentioned limits. For example, you may propose to not lose more than 10 trades per day and not trade more than a total of 50 trades.

The rule in this case is that you should stop trading whenever one of these conditions is met. For example, if you have lost 10 times but you only traded 20 times you should stop, even though you also proposed to trade a total of 50 trades.

And this is all we have to teach you in this binary options strategy article. Remember, a proper binary options trading money management strategy is essential in becoming a winning trader, so this guide is perhaps one of the most important pieces of advice we can give you.

If you want to learn more about how to win in binary options and binary options strategy then feel free to browse though out additional articles. And like we always say: trading binary options successfully doesn’t depends on luck, it depends on commitment and discipline.

Master just a few of our binary options strategies by practicing them on a binary options demo account from one of the best binary options brokers and you will be successful. Your binary options account will grow and you will earn a substantial income as long as you follow the winning binary options strategies correctly. These are some of the best binary options winning strategies on the internet. 

Binary options trading can be extremely rewarding to those traders who understand the Money Management binary options strategy and are able to make the right choices. Winning binary options soon becomes easier. In fact, by using binary options strategies it’s possible to increase one’s winning ratio and generate substantial profits. Elite Trading wishes you lots of success in your trading.