Risk Management With Binary Options
Trading the financial markets requires a sound strategy that employs robust research, a technique for initiating a trade and solid risk management. Managing risk appropriately is the key underlying element for successful returns over the long term. Risk management as it pertains to individual trades focuses on the exit point of a trade which is often overlooked when a trade is initiated. One of the best ways to handle risk as it pertains to trading the capital markets is to use Binary Options as the investment vehicle.
Money management focuses on the amount of capital that will be risk on a specific trade. This concept can be broken down into the expected gain or loss as it relates to return on a trade.
Prior to initiating a trade, investor who are trading standard investment products need to formulate a strategy in which they will determine the appropriate profit and loss that they are willing to accept. Binary Options provide many of these processes for an investor and allows them to benefit from automatic and uncompromised risk management.
For example, at Magnum option, Binary Options provides a pre-determined investment amount and payout to investor which means they cannot lose more than the premium placed on each trade and not gain more than the pre-determined payout that is set before trade initiation. A trade could move heavily against investors and still they would not lose more than there premium.
Another robust benefit of trading Binary Options is the pre-determined time frames available for each option. The choice is vast allowing investors to mitigate risks by taking short term or longer term positions; ranging from 60 seconds, 5 minutes, 10, 30, hourly, daily, weekly and even monthly. Magnum Options also provides a 10% of your initial premium back for trades that land out of the money, further increasing an investors risk management capabilities. Prior to the expiration of a trade Magnum also will allow traders to take profits on trades, further enhancing a traders risk management capabilities, and even gives a sell option available to traders in the Open Platform which allows them to receive a percentage of initial investment back before expiry if they can see their prediction on a trade was false.
An investor needs to determine a prudent risk reward profile in which the profit is a multiple of the loss. Although there are a number of trading strategies that win more than they lose, there are very few that will be successful over time if the amount of loss on a trade is a multiple of the profit made on a winning trade. By using Binary Options, the profits are a set ratio of the potential loss. Another way of weighing the profits more in favor of loses is to have several strategies working at once – Magnum Options also offers a wide range of proven strategies created professional traders exclusively for trading Binary Options – having a multitude of such strategies greatly increase profit potential.
Risk management is an extremely important function of successful trading. Many times the concept is lost as investors focus on a theory behind purchasing a security and its long term relative value. The underlying focus of a potential trade should be the amount that will be risked compared to the potential reward which is the risk reward ratio. Focusing on risk management will allow investors to remain solvent and generate robust trading strategies.