Safe rules for trading

Let’s be honest here. We see a lot of advertisement for binary options all over the Internet and they are certainly the most popular new trading product in recent history. But you need to be realistic for trading these instruments. Do not believe brokers telling you that it is easy to make a profit, that you can make thousands of dollars of extra income every month by trading binaries. Of course some traders do, but they are a minority, probably less than 4% of all binary options traders.

So the first rule for trading these novel trading tools is to have realistic expectations. It is certainly wrong to believe that they are the solution to your financial difficulties if you have any. Only transfer to a broker the money that you can afford to lose. Let’s say you have $25,000 in savings invested in the stock market, in long-term bonds and in CDs. Then taking $1000 or 4% of your savings to trade the binary options market is a reasonable idea. But if you are already heavily indebted with a mortgage and credit cards debt, then it is recommended to pass on this opportunity.

The second element is to select the best brokers. First you determine your bankroll ($1000 in our previous example), then you need to chose one or more binary brokers. With a $1000 bankroll you can pick two brokers so that you can try two platforms and measure the pros and cons of each while doing your first trades. So when you choose a broker it is best to first try their demo accounts so you do not have to send any money to test their software. Then look at the bonus they offer, how easy it is to withdraw money, how large is their asset list, are they licensed, etc. This is an important step to select the best dealer for your future trading.

The next important rule is to have a trading plan. For instance you need to establish money management rules such as the size of your trade. With the $1000 bankroll you may want to risk a few percent only at each trade, like 2% or $20. The percentage you choose relates to the so-called risk of ruin, which is a basic tenet of money management. What this means is that you need to invest such a small chunk of your bankroll so that you can survive if you are very unfortunate with a long series of losing trades.

Finally and this could be the hardest part of trading binaries or any financial assets for that matter, you need to learn how to control your emotions. In particular in your suffer losses it is incorrect yo change your trading plan. This reaction is a consequence of emotions, but you should only change the plan after some analytical thinking, not when you are all excited about getting many trades wrong.