If you are just beginning to trade binary options, there are a lot of reasons why you should be very careful at first. Binary options are an extremely risk investment even for experienced traders. While day traders have the ability to make a lot of money with binary options very quickly, they also can lose a lot of money just as fast. Learn why you should take it slow, and how you should prepare yourself to trade with larger size trades.
When You Lose, It’s All Gone
A binary option is a very simple instrument. When you win, you win a high return pre-specified payout amount, and when you lose, you lose your entire position. The allure of scoring a huge trade causes many people to wager big amounts on binary option trades, especially right when they start trading. They may even take a position using their entire account value.
When you are trading your whole account value, it only takes 1 wrong trade to lose everything you put into it. More often than not, a loss comes quickly to those who try this ill conceived practice. When it does, they are left feeling depressed and dejected. This is a mistake that can easily be avoided.
Realize That You Will Lose
A big part of being a successful day trader is managing expectations. People who have been trading for a long time are under no illusions that they will be able to avoid losses. Having losing trades is an inevitable and unavoidable part of day trading.
They key to being successful trading is to manage your losses, keep them small, and realize that as long as your strategy is net profitable, you can simply increase your trade size over time and make a lot of money.
While there are different strategies to limiting losses depending upon what you are trading and your trading style, every trade must come to the conclusion that a dollar saved in a losing trade is a dollar earned. An equities trader may use a stop loss, an options trader may take positional hedges, and binary options traders must develop their own strategies.
Small Size Means Less Loss
A good way to limit losses when you are just starting to trade binary options is to keep your position size very small. While this may seem frustrating to the beginner who instantly wants to make a lot of money, they must keep their expectations realistic. Very rarely does a trader become rich over night, and when they do it is always luck. Since luck is out of your control, you should decide instead for the most optimal outcome.
No matter how well you think your strategy will work, unless you are using it with real trades and real money, it is not proven. The first step that any beginner needs to take is to prove that they are profitable with small positions.
Beginners Want To Stick Around
A beginner wants to stay in the game long enough to get better, improve their trading, and eventually make a lot of money. If you lose a lot of money quickly, you will not have enough time to develop and learn.
The name of the game for anyone learning to trade is longevity. Most traders fail very quickly because they do not allow themselves enough time to get skilled at the craft. Successful traders know that they will have a learning curve and they either have so much capital to begin with that large losses don’t stop them from trading, or they were smart enough (or lucky enough to be told by a teacher or mentor) to know that they need to trade for a decent amount of time before they will be skilled enough to be consistently profitable.
If you can not turn profits on a consistent basis such as weekly or monthly, you should only be taking the smallest positions. Only after creating a track record which proves your profitability do you have any right to take larger position sizes. This lesson is very expensive for most new traders. If you heed this advice today, you will save yourself a lot of money.