The following is a guest blog post:
If you’re already into trading, then you probably already know that binary options is the big thing right now. If you don’t currently trade, binary trading is a simple platform that allows traders to invest even small amounts of capital and make quick returns on investment by trading, or “betting”, on either short or long positions.
Especially if you’re a novice in the trading arena, binary options provides a platform to get acquainted with the markets. This is so because you can invest any amount – as little as $10 – and minimize your losses considerably. However, like any investment method, you need to tread lightly at first if you don’t want to lose your shirt. If you’re thinking of trying out your luck in binary options, or have been incurring losses in your trades, here are some mistakes that you should avoid making at all costs.
Not Having a Money Management Strategy
Most people that get into the markets assume that having a robust trading strategy and technical analysis of the market is all they need for successful trading. While I agree that these are important factors in determining your success when you start making investments, your strategies will be a waste if you don’t have a proper money management plan in place.
The logic behind having a prudent money management system in place is based on the fact that the financial markets are very volatile. You can only speculate about how things will turn out based on the market forces, but you’ll never really predict with certainty how different factors will work out. Your money management strategies, therefore, will determine how successful you’re going to be in the binary options trade. One of the best strategies for money management that has been used by investors for decades is called the Kelly Criterion.
This strategy was founded on the “don’t-put-all-your-eggs-in-one-basket” ideal. In fact, you should not invest more than 5% of your total income on one asset. If you have a budget of $500, make sure that the highest amount you invest in one asset doesn’t exceed $25. Therefore, if a few of these assets perform dismally, you can cover your losses by gaining in other asset that perform well. If you have limited capital, you can always go with a platform that allows small initial investments, such as Stern Options for instance.
On the other hand, if you put all your $500 on a single asset, while the potential returns may appear tantalizing, if you lose your investment, you’ll be out of business and licking your wounds. So, make sure you only invest what you can afford to lose, this way, you won’t be investing with “scared money”.
Let’s face it, binary options are very similar to gambling and many investors fail to see the obvious difference between the two. In fact, binary options have been often referred to as financial betting by many insiders.
But the difference between binary options investment and gambling is like day and night. Gambling is generally based on luck while binary options are based on the strategic prediction of possible outcomes based on a thorough analysis of market forces.
Therefore, when you’re investing in binary options, never approach it as a gamble. It is a calculated risk-taking venture. That’s why it’s extremely important to consult experts such as trade brokers who have a better understanding of the performance of the various assets available for trading. You must also carry out your own extensive research on the various currencies, commodities, or assets that you intend to invest in.
Investment should be made based on an observation of the performance of the asset in the market. For instance, you can analyze how current affairs are likely to affect prices of a commodity. For instance, how will a certain conflict affect the price of oil? Is it likely to push it high or low? Is the discovery of oil in the Black Sea going to affect the international oil prices in 2018?
Answers to these questions can help you determine how you’re going to answer to prepositions on various commodities. Therefore, if you’re going to burst the bank with binary options, ensure you don’t approach it as a gamble. Justify the reasons why you’re going to pick any particular position on a trade.
Keep Your Emotions Out of Your Investment
Some people might be in love with a particular commodity. Take gold, for instance. Many people see gold as the perfect financial stronghold and might neglect other metals or commodities. Or might be overly optimistic about their value. But that does not change the fact that the value of gold has been plummeting for decades. Your bias for a certain commodity should not cloud your sound judgment of the risks involved in investing in certain assets.
Others might be overly optimistic about certain currencies because of the strong state of their economy. Many investors who have been driven by greed or anger when making an investment have ended up making huge mistakes. Don’t be one of them. Keep your emotions in check.
Being too eager to make quick profits is also something that you must avoid. Weigh all the possibilities before investing your money. Being too eager can make you desperate and also make you fail to see the bigger picture. Remain calm as you make your investments. If things don’t seem right, wait until you’re convinced that it’s the right time to make the investment. Your decision should be guided by logic and an understanding of the market forces, period. Keep your emotions out of your trading decisions.
Binary options can be a very rewarding investment opportunity for any new trader. But just like any other investment venture, it comes with its own share of risks. To minimize these risks, it is important that you trade carefully and avoid making silly mistakes.
One of the most common mistakes is failing to have a money management system in place. It is absolutely essential that you learn how to manage the capital you have for investment. Failing to have a strong strategy in place can be disastrous in the long run. You should also understand that binary options trading is not gambling, but calculated risk taking. Base your investment decisions on a thorough analysis of market forces if you want to raise your chances of making a profit.