Guest post by Heather from BinaryOptionTrading.com
Binary options are pretty new in the financial world and that means that there has been some obvious delay while technology catches up to the rest of the marketplace. When it comes to automated trading, this has been pretty obvious. But analysts have finally caught on to the potential here, and this means good things for you the trader. And that means that automated trading has finally become a reality within the world of binary options. Not only that, it is catching on in popularity and becoming very efficient.
Signing up and paying for a trading service isn’t the end of the work for you, though. One of the most important things that you still need to do as a trader is figure out and constantly monitor your risk levels. This can be tough, though, especially because of the all-or-nothing nature of binary trading. If you’re new to these, you need to quickly realize that the complete amount you risk is usually lost when you are incorrect in your prediction. And when someone else is making trading decisions for you, you become a bit removed from this process. It’s easy to see that you’re losing $100 each trade when you are manually inputting trades yourself, but when it’s automated, the distance between the trader and the trade becomes pronounced and this can lead to problematic risks.
So how do you fix this? It starts with basic money management skills. A lot of experts say that you should never risk more than 1 to 2 percent of your bankroll on a single trade, but this isn’t really that accurate. Sometimes you should risk more and sometimes you should risk less. There are actually some easy things that you can do to calculate an exact number that you should be risking, such as with the Kelly Criterion. The problem with this approach is that the vast majority of calculations rely upon the perceived percentage of success you will have. This is a viable method if you are manually entering every trade and doing a separate calculation for each trade, but when you are using an automated trading system, this becomes impossible.
This poses a rather large problem, actually. When you are automating your trading, you need to make sure that you are not risking too much or too little. Otherwise, you stand a good chance of either not making significant profits, or of going totally broke. But if you think about these things, one is much better than the other. If you go broke, you’re done until you reload your account. The obvious solution here is to risk on the smaller side of things. This way, even if you are risking too little on some trades, you will very rarely be risking too much. If the service you are using is worth the money you are spending on them, then this little inconvenience should easily be overcome.
Ideally, you would want to dictate how much you are risking with every trade. This way, you can move the amount around so that you are maximizing earnings when you have a big advantage and reduce your risk when the odds are slightly less in your favor. However, automated trading can be an even bigger advantage, and while these two are currently irreconcilable with today’s trading technology, you still need to approximate in order to have the best results.
Right now, there is only one way to attempt to do this. You need to trade for a while on your own and get a feel for the market before you subscribe to a service. You need to use a reliable money management system to give you a good idea of what an average trade looks like. You will actually start to find that there are certain amounts that you will risk more than others. This is largely determined by the amount you have deposited in your account. It is also determined by the broker you use. Some brokers do not allow you to tailor your dollar amount as precisely as others. But with more experience and more trades being crosschecked against appropriate money management systems, you will figure out a good figure that you can use for every trade. If you have any doubts, or your broker forces you to pick a rounded number, always round down. It’s better to gain less than to lose beyond your means. More helpful tips about binary options can be found at binaryoptiontrading.com. This site is a leading brand in the marketplace, which helps traders succeed.