Money Management Strategy and Systems in Binary Trading

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Binary Options Money Management Strategy

When trading, like in any activity which involves risk, you have to have a clear and coherent Money Management plan. Without it you will be trying to build a house without laying the foundations first. Many traders miss out on this important aspect of trading, as there are more things to consider than just counting your money. Then just as important as working out a plan is sticking to it, Discipline is the golden rule here.
Construction of a coherent plan begins by asking yourself the following 3 questions;

  • How much do I want to risk overall?
  • How much do I want to risk per day?
  • How much can I risk per trade?

Risk Management Trading Systems

Answering the first question can be reasonably easy, for example, I have £5000 and I want to put my trading skills to the test so that is the sum I can afford to risk. Yet out of the £5000 you begin with, you may limit your maximum loss to say £2500, which is reasonable. If your trading only results in losses, and you find yourself losing 50% of your capital, it is probably best to stop. Take a step back and try and figure out what is going wrong. It would seem evident by this point that there is something wrong with your trading plan and it needs reconsidering.

The second question is a bit trickier and takes a bit more thought. How often are you thinking of trading? Given the above example, how quickly are you willing to risk going through £2500 before you have to stop? My feeling is that you shouldn’t want to risk burning your capital out in less than 2 to 4 weeks, which means 10 to 20 trading days. So you should be thinking along the lines of 1/10th to 1/20th of your capital per day. This means that you would be risking between £250 and £125 a day.

Are you an ‘active’ trader?

This assumes you are going to trade actively, or trade at least once a day. What if you only intend to trade occasionally? Perhaps on the back of an idea you have had, or a recent news line. Say you might trade every 2 or 3 days. In this case it could be very tempting to think that you can sum the cash you didn’t risk on the days where you didn’t place a trade. So “I didn’t trade for 2 days, I can risk £750 or £375 today on one trade“. This in reality just increases the risk you are taking, and you could find yourself down £2250 with just three bad trades. Yes, it could still take you two weeks to accumulate this loss, but it has only taken you 3 wrong trades, and that can happen very easily. So again in this case it’s best to remain with 1/10th or 1/20th per trading day or something closer to 1/20th if it’s all going on one trade.

This leads us to answer the last question, how much to risk is acceptable per trade? This depends on how many times you want to trade a day and if you are willing to spend a lot of time in front of your screen. It may well be that you only have enough time to put on 1 trade a day, in which case I would recommend that your single trade (and daily risk) are both, at the most, 1/20th of your risk capital, in the above case £125.

Let’s say you’ve decided to risk £200 a day trading binary options and you plan to trade every day. You could put that all on one trade and see if you were successful. This would ultimately be the riskiest route. It does depend on how much time you can dedicate to trading but I would split whatever daily number you have decided into between 2 to 4 trades. You don’t necessarily have to make them all, but it’s better to give yourself a few chances a day, not just one. If you have the time, splitting the daily risk size in various trades may be more rewarding.

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Applying Money Management With Binaries

The thing I like most about trading Binary Options is that risk is well under control. You know how much your maximum risk per trade is when you place it, and it is simply the cost of the option. However human emotions can come into play, especially on a bad day. As we have seen above if you lose your daily risk amount then basically you should turn off your screen and wait for tomorrow.

This is probably the hardest task to follow. As a trader you are going to feel you can get it right, just one more try is all you need. But we should look at it this way, let’s say you have £210 daily risk limit, which you break into 3 trades of £70 each. If you happened to get all three wrong you are unlikely to get the fourth one right either, simply due to fatigue or trading based on emotion.

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  • Binomo

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By this point you may well be upset or not in emotional equilibrium, this can lead to bad judgement and is more likely to make you pick another trade that loses. From a money point of view you are down £210 and placing another trade will give you the chance to make back at best 90% or £63, which won’t turn you a profit for the day, but losing that trade will now bring you down another £70 to a total loss of £280 for the day.

That can only feel worse, and more dangerously can start a very risky spiral where you have no more limits on how much you can lose a day or in total. Limits are a good way to encourage discipline within trading.

You could also add more rules or limits. Taking the above example (£210 daily limit split into 3 trades), you could add the rule; 2 straight losses and I’m out for the day. For example, say that you start the day with 3 straight wins, no reason to stop on a winning streak. But now let’s say you lose the next two.

Now you still have profit for the day, and can walk away. This rule, of 2 losses and out, will protect your gains for the day and limit losing not only what you gained but also your daily risk limit. If you continue trading you may make two more winning trades but you may make two more losing trades, in which case from being up £210 for the day you now find yourself down £70 for the day. The “2 straight losing trades = out” rule can help in protecting your winnings. Remember in trading one of the most important concepts is capital preservation, and being able to trade again tomorrow.

Rules such as these may suit some investors and not others – but the three fundamental questions remain. One thing that every single broker can agree on, is that money management is of paramount importance when it comes to trading success.

Percent Rule

Another popular strategy for money management is to only ever risk a certain percentage of the total investment fund. One of the benefits of this system, is that trade size grows after a series of winning trades, and likewise is scaled back in the event of losses.

The percent rule represents a very simple system. With any single trade, only certain percentage of the fund is at risk. This will rarely be over 5%. A sustainable, low risk strategy might commit just 1 % of the total funds.

The rule is not strict is as much as the percentage does not need to be calculated prior to every trade – just “baselined” every so often. So someone with a trading fund of £1000, might decide to open trades for £20 per trade – representing 2% of the fund at risk each trade. That £20 trade size might stay in place until the fund reaches £1200 (or perhaps suffers a number of setbacks and hits £900). At this point, the trade size can be adjusted.

So the calculation is not ongoing, but more of a yardstick for the next period of trading. Some traders might re-baseline once a month, others at the end of each trading day. The mechanisms are not the key to the system – the main point is to only risk a small percentage of the total balance per trade.

Calculator Table

To assist in using the percent rule trade size system, below is a quick table to show ‘at-a-glance’ trade size, with varying investment fund amounts, and percentages. Those looking to take less risk per trade will want to use a smaller percentage, and higher risk takers will use a larger percentage. Fund size can be multiplied up to suit, as can the percentages.

1% 2% 5%
Total Balance
£100 £1 £2 £5
£250 £2.5 £5 £12.5
£500 £5 £10 £25
£1000 £10 £20 £50

The above calculator shows the importance of checking the minimum trade size at any potential broker if the investment fund is on the low side. Traders can easily find themselves taking more risk per trade than they might like because the minimum trade forces them to risk a larger than desired percentage of their overall bankroll.

7 Binary Options

Currently, there are tone of articles that have been published on various sites and online forums, regarding binary options trading strategies. It is also a known fact that the majority of traders spend about 99 percent of their time searching for the best binary options trading strategy, indicators and the best markets to invest in. While this is important, traders rarely take time to ponder about a most important aspect of trading binary options – money management. Since the trade is about either winning or losing it all, it is important that you exercise money management strategies. If you are to succeed in this trade, you have to explore the current strategies and settle on the one that will maximize your chances of profiting from the trade.

Risk and Money Management

While risk and money management have different meanings, they are closely related when it comes to binary options. This is mainly because the manner in which you manage your trading capital will determine the risk that comes with the investment choice. In this regard, you need to manage your capital in a way that minimizes the risk. For instance, you should avoid staking all your capital on one outcome because the risk is too big.

The Best Strategies to Manage Your Money

To set up an effective money management strategy for binary trading, there are various approaches that you may use. Among the simplest and most effective strategies is the ‘Kelly’ system. Over the years, this method of betting has become a preferred money management strategy among binary option traders. With this method, the objective is to maximize the chances of profiting from the trade while minimizing the risk that comes with the investment. In theory, the system suggests that minimizing the risks associated with your investment will put you in a better position to profit from the trade.

Implementation of Kelly System in Binary Options

When using this strategy to invest in binary options, it is advisable that you invest only five percent of your balance in any particular outcome. With a regular broker, this translates to a 5 percent risk against about 3.5 percent return on the investment. While this may appear to be a small investment, the method focuses on reducing the risk and maximizing the potential to grow in the long term. With this strategy, a string of losses will not put you out of business as you will still have money to invest.

Traders need to understand that there is a slight difference between trading and gambling. With an effective money management strategy in binary options, you increase your chances of profiting from the trade.

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4 Secret Money Management Techniques used by Profitable Binary Option Traders.

It’s secret because traders rarely talk about it.

I’ve realized from my interaction with numerous traders that it is “extremely” difficult to succeed at trading (Binary option) because the odds of success are stacked against the trader despite being advertised as a make money fast instrument by the brokers.

Binary Options; the type of trading instrument that requires a trader to speculate on the direction of an asset with the possibility of earning between 70-90% ROI per trade.

First, Why Binary Option (and other market) traders consistently lose

I will easily answer this because a lot of traders keep asking this. Traders play the game the wrong way. You walk into a casino, you have $1,000 tucked in your pocket making it look fat, all the beautiful girls are around your table inflating your ego, you are then subliminally imposed with one mentality — “YOU ONLY WIN IF YOU MAKE A BIG WIN”.

This is not how a professional traders think. I am not willing to risk all my capital on “this table”, I am not plotting to make the biggest hit of my life right now, I am more concerned about playing the game to get small wins on a consistent basis, which means my trading plan is not dependent on the roll of a dice but on clearly written plan. Trading isn’t lottery, it’s a business.

But, how do these Brazillian traders do it ?

Flipping $10,000 into $21 Millions in about 3 weeks — That is Sound money management.

I have also been participating and sometimes I win in competitions asides from my usual real market profit.

Just like every athlete, online trading competitions are my training grounds and there’s a money management technique used specially for competitions which is more preferable than “martingale” — which is a gambler’s tactic to spend all his money at the table or leave with a large profit on the strategy of “hope and faith”.

In the picture below, this is one of the competitions I won using the money management system.

Most traders try to avoid any type of trading that involve “options”. Not everyone has been able to achieve a consistent and profitable Binary Option career, those who have achieved that, understand that there are secrets and most don’t like to share these discoveries.

Sharing this ABSOLUTELY FREE courtesy of Reborn Markets, Please visit here to get hooked up with different free Binary Option signals and algorithm scripts on Tradingview.

The four types of Money Management Systems

Your Money management would be based on your trading methodology, so you have to understand the type of trader you are, and more importantly which one of these would best leverage your strategy for maximum profit.

  1. CBOC — Constant Based Off Capital; Trader chooses an appropriate single risk percentage — 3% for every trade. We recommend between 1% and 5% per trade, as the trading balance — $100 increases or decreases because of activities in the market, the new amount to be used for every new trade will be calculated as a percentage, which is then calculated based off the current balance.

Illustration; Jim chooses to use only 2% of his account with CBOC, he currently has $100 in his Options account, if after the first trade he incurred a loss of $2 ($100×0.02 = $2), the $2 is the amount he will risk per trade.

His next trade would be ($98×0.02 = $1.96), with an assumed ROI of +80% per trade, if this second trade wins, his new total balance would be $99.56 and that is what generates the next trade amount, which would be $1.99($499.56*0.02).

This system ensures that your current balance is directly proportional to your trading performance, your risk follows suite. It is advisable for you to also keep a loss limit (‘risk control’) to a daily of between 15-30%.

This is very important because your system can and will experience bad days but will always reward you for your losses if it’s a working system.

I use the reliable signal services of BusyBee Signal system and the Binary Hybrid from Reborn Markets as my system for Binary Option.

2. CBOP — Constant Based Off Profit; This is the similar in method with CBOC, the difference is that this system trades on a percentage of the realized profits only ((current balance – opening balance) *0.02). When your profit has hit a threshold of about +10% to +50%, you can begin using this system to secure a long term hold of the profits, only the profit is taken into context for calculating the risk amount. And as the profit amount grows, the risk amount put into each trade is adjusted.

Warning: Do not adjust the CBOP percentage at random, your trading plan must remain consistent, 2–5% is still recommended per trade.

3. FAB — Fixed Amount Based; This system uses a fixed amount per trade consistently throughout an entire trading session . This is a fail safe system for traders who are beginners or who are still undisciplined. If you often find yourself trigger happy, switching from following a standard system to rolling the dice in your style of trading, this system is for you.

A particular fixed amount is chosen off the trading capital and used consistently throughout the entire trading day.

Daisy has $1000 in her trading account, and she decides to use FAB, she decides to trade $50 FAB from her balance. Either subsequent trades Win or Lose, she uses only $50. This is good for traders with a balance above $1,000.

4. TSC— Three Step Chain; This is a ‘chain-like’ model for trading the markets. However, this is the most risky method, TSC prioritizes limiting your losses and enables growth minimally.

This is how it works;

  • step1: cut out a fixed fraction of your whole trading capital — e.g 15%
  • step2: divide that value into 3, in the ratio “1:2:2” or “2:2:1”, You have to understand that, your strategy should be in the direction of the trend and not a counter-trend strategy, now depending on your experience and your trading pattern, you can understand which of the 3 trades in the cycle has the highest probability of a win, you then go ahead to allocate properly, given our balance to be $1,000–15% TTC would mean a maximum of $150 per session is our risk.

The first trade and second trade is usually the strongest in our system;
first trade: (2/5×150 = $60)
second trade: (2/5*150 = $60)
third trade: (1/5*150 = $30)
Total risk is $150.

When a session/cycle is over, a new session means trading $60, Please also keep maximum limit of loss should be -15% and not more. and this can only happen by losing 6 trades in a streak, definitely, that would imply a really bad day in the market.

Money management system for Competitions

In competitions, you are given a starting balance and you compete everyone else to grow that balance within a stated period of time.
The balance is not a real balance but there is a reward for being at the top of the board.

I also use the reliable signal services of BusyBee Signal system and the Binary Hybrid from Reborn Markets for trading competitions.

Best Binary Options Brokers 2020:
  • Binarium

    Best Binary Options Broker 2020!
    Good Choice for Beginners!
    Free Trading Education, Free Demo Account!
    Get a Sign-Up Bonus Now!

  • Binomo

    2nd in our ranking!

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