Risk Management for Binary Options Trading

26 Oct

A binary option carries its fair share of risks that need to be managed by any investor. In fact, the significantly higher payouts from each venture should already be a warning sign for savvy investors who are familiar with the cornerstone of investing: higher risks mean higher rewards, and be sure to read an anyoption review. Seldom can you find an investment vehicle that offers profits as high as what binary options can deliver without incurring risks that are proportionate to the return.

In the case of binary options, it is not hard to see what these risks are:

  • First up, the nature of the investment calls for – in most cases – zero payouts in the event of an out-of-money transaction. What this means is that if you picked the wrong outcome for your option, you are left with nothing to show for the venture.
  • Second, the short expiry times for many options mean you are likely to lose a lot of money in a short amount of time. Suppose you have a broker that allows minimum trades of $30 per transaction; if you have 1-hour options and you execute one venture each throughout an 8-day trading period and all of these trades ended up out-of-money, you essentially lose $240 within that period. Now, imagine what can happen if you are working with much bigger trades.

Managing the risks with options investing means recognizing these risks prior and then implementing some countermeasures to make sure you can manage the risks.

  1. On the subject of out-of-money transactions, it would be helpful to choose a broker that offers 10% to 15% of these failed ventures. What this means is that if you end up out-of-money, you get a 15% return of your initial investment instead of not getting anything at all. These are now many brokers that offer this service and you would be wise to seek their services.
  2. It would also be helpful to only trade if you have solid information to go by in anticipating how assets move. For example, a positive earnings report for a company is likely to result in asset price growth while a slow earnings report might mean the opposite. Hold off from trading options if there is no information to help guide you how to call your ventures.
  3. Be familiar with some trading strategies that you can use to hedge your ventures. An example is liquidating mid-option if you are in a favorable position. Another is to place multiple options on the same asset mid-option depending on the movement. These strategies require a higher degree of understanding for options trading but are very helpful for ensuring your bottom line.

Always keep the risks in mind when dealing with binary options. Don’t get blinded by the high profitability if you cannot manage your risks accordingly. The truly savvy investor knows this and you should take the necessary efforts to pick this up as well.

3 Responses to “Risk Management for Binary Options Trading”

  1. Elmo February 17, 2013 at 5:39 pm #

    i recenetly came acroos a revolitionary stockng system known as as binary option buying and selling i’ve done my research but still doing research how realiable could it be?? assist me men. And which website provides the best?

  2. Franklyn March 5, 2013 at 11:47 am #

    I attempted lately to alter my activities from the full-time employer to some options trader.I opened up a merchant account having a broker but however , I’m losing .Can any body produce some hints to create some gains ?Pehaps we are able to share exactly the same activity and interact?

  3. Keira April 24, 2013 at 5:05 am #

    What’s your odds of succeeding with one of these options?

Leave a Reply