Although a great deal of money can be made in Binary Options trading, it’s important that you recognize there will be some trades you will make no money on, or loss. These losses, with enough of them over time, can eventually topple even the most secured financial portfolios.
This is why it’s important for South Africans interested in Binary Options trading to become familiar with Risk Management.
Understanding Risk Management
Risk Management refers to the process of minimizing the trades that you lose, and overall reduce the probability of such an event to occur.
To do so, you must take into count a number of factors. To help you, we’ve included them as well as some important strategies to consider.
Calculating Your Win/Loss Percentage
This process, also known as your risk/loss factor, means knowing the risks behind your trades and the amount of your losses.
With every form of trading, there is a risk that your investment will lose a significant amount of money. There is also a black and white chance that your binary options trade will be successful, or that it will fail. The outcome of this is known as your win/loss percentage.
As a consequence of disregarding such an effort, many traders report a higher quantity of losses, and therefore, a loss of the overall value of their investment.
The mathematical formula to calculate win/loss percentage, you would simply divide the number of your trades against the number of successful trades. This would work the same way to calculate loss, only inversely.
Understand the Statistics
A key aspect to calculating your risk is understanding the chances behind the asset you are trading. For this reason, it’s important to focus on the probability of your asset to change in price, and understanding the risks of owning the asset.
The changing of price, otherwise known as price variance will happen regularly to your Binary Options trade. In order to calculate the price variance rate, you will simply need to match different sets of data against each other (normally in sets of three).
This formula, as well as others, can be found in the research section of many Binary Options trading platforms.
For example, if yesterday Gold’s price was 500 rand, and it rose to 600 rand today, from 495 the day before, you would add all three together and then divide it by three. This would bring you something close to the actual risk percentage of what the price will vary in.
Certain assets have a higher volatility, driving the prices up and down rapidly, and this could be considered a risk to owning it. This is especially true for assets such as Oil, which change in price often.
Support teams on trading platforms are available to work through any concerns that may arise through your initial understanding of this process, and build your risk management methods.
As you grow your own risk management strategies that stem from professional investing formulas, you will always notice that there will be more to learn that will help your Binary Options trading.
With taking the above into consideration, it should also be noted that smart South African investors diversify their Binary Options portfolios. This means owning multiple assets in multiple sectors of finance, and will increase the percentage of your wins.
The ability to calculate the different risks that may arise with your trade will give you a strategic edge in the future of your portfolio. These percentages often repeat themselves, and give you another hint at emerging trends within the assets that you possess.