Plenty of traders rush into binary options trading seduced by the seeming simplicity of the trading process.
And while it is true that the process itself is not overly complicated, starting binary options trading without a money management system and a trading plan is not a good idea.
That is the reason why we decided to offer South African traders a guide on the best binary option money management system.
We shall also point out the most common mistakes traders do when they begin trading binaries without such a system.
How to Construct a Binary Option Money Management System?
In some way, the most common mistake which happens to potential binary options traders is to give up on the money management system before they even began putting it together.
Money management system or plan includes learning, analysing, strategies and budget. This can feel overwhelming, especially for traders which have little or no experience.
So, instead of taking some time to learn more about the basics of what might result in the best binary option money management system they simply go into trading and hope for the best.
This approach is more like gambling than trading. And gambling depends solely on luck. On the other hand, binary options trading has everything to do with careful preparation and then equally thorough execution.
Careful Market Scrutiny
The first step toward putting together a good management plan is to carefully scrutinise the circumstances on the market. In knowing what is happening with prices of underlying assets traders are interested in will help a great deal.
When traders know which underlying assets they are looking to trade and when they understand the movement of the prices, traders will be able to slowly put together a plan which is realistic and attenable. A realistic plan, based on the facts is more likely to yield profits than simply trading on the gut-feeling.
Long-Term Trading Plan
Another common mistake new binary options traders do is to let their imagination run away with them. Especially when they read about fantastic winnings some binary options traders achieve.
While some of those winning might be achieved by newbie traders, it is more common that those with more experience finally meet success.
South African traders who have recognised the great potential of binary options plan, observe, learn and keep on top of recent events. Based on they make their money management system. And, more importantly – they stick with it.
They are also very well aware that trading, in any form, consists of both losses as well as winnings. Nobody, no matter how experienced can profit from every single trade made.
South African traders who wish to make a profit from binary options trading in the long run also have to approach the construction of their binary options management system in terms of a long-term trading plan.
That includes not just day-to-day planning, but planning on the weekly or even monthly basis.
It is true that the underlying asset market varies, and it is necessary to always be informed. However, there are also some underlying assets like indices which are not so prone to changes and might be an interesting choice for long-term planning and long term investment.
Keeping Emotions Under Control
In order to come up with the best binary options money management system, it is imperative that South African traders learn how to keep their emotions under control.
Many traders are not even aware just how important this is. They see binary options trading as a dynamic, entertaining and potentially profitable activity. This is all true, however, traders also have treat trading binaries as a business too. If traders fail to be in control of their emotions many mistakes are likely to happen.
The mistakes such as over-trading, trading only short-term options or jumping in to take “too good to miss” opportunities.
When traders fail to keep emotions out of the trading process they frequently commit the mistake of over-trading. This happens for several reasons: greed or disappointment.
When binary options trading starts going well, and this often happens when traders came up with a good plan and kept to it, they become greedy and start trading outside of their money management system. Eventually, they end up losing the funds.
This, in turn, leads to disappointment. Sometimes, even to sheer panic.
It is not rare that traders panic when they realise they lost most if not all of their funds.
In trying to cover the losses, traders carry out even more trades and often that just leads further disappointment. Hence, even the best binary options money management system will be useless if traders get carried away by their emotions and don’t stick with the original trading plan.
No matter how the trading is going, investing more than 10% (ideally from 2-5%) of the funds is a bad idea. It is one thing to tweak the trading plan according to the changes on the market. But to forgo the money management system completely based on the hunch will, most likely, end in tears.
Emotions also play a big part when inexperienced traders decide to trade only short term options like 60 Seconds. They are often seduced by the possibility of high returns which come with short term options. Sadly, they also often disregard another fact that comes hand in hand with short term binary trading options – higher risks.
The short term options definitely have their advantages and can be very profitable.
But, traders also need to have more experience in the trading to know when to use them and with which underlying assets. The same can be said for alluring offers binary options brokers sometimes offer on their trading platforms. Especially those which promise 100% returns.
South Africans looking to trade binary options have to be aware that there is no such thing as 100% sure winnings. Not in this manner of trading or any other financial enterprise.
All these mistakes and traps can be avoided with a well-constructed money management system rooted in market fact, knowing the underlying assets and investment of funds which will never exceed the 10% benchmark per trade.