Why Trader Lose Their Money when Trading with Pocket Option
Why People Lose Their Money When Trading Binary OptionsBeginner traders often put large amounts at risk when investing in binary options. As a result, they lose their initial deposits quickly and get disappointed with online trading.
Most beginners lose their deposits just because they dont follow the basic risk management or money management rules.
Heres an example:
Sounds familiar, doesnt it? Lets see why Sam was wrong:
Sam learned about binary options on the net. He remembered he had wanted to try Forex trading for a while. However, in case of binary options, everything is much easier, and so he decided to explore binaries.
Sam invested a lot of time in finding a broker that suited his needs, he studied popular strategies, and finally made his first deposit. He selected a broker with a minimum deposit of $200 and a minimum investment of $20. So he just deposited $200 and started trading, investing $20 per trade.
After making 5 trades based on one of the strategies, Sam was twice in the money and three times out of the money. His account balance dropped to $170.
At that point, Sam thought that the strategy just didnt work. He decided to try a different strategy and went on trading, investing $20 per trade again. After making 8 trades with this new strategy, he was four times ITM and four times OTM. His account balance now dropped to $150.
Sam got a bit bewildered, but then he discovered that his last two trades were profitable, and so he decided to raise his investment amount, this winning his money back. He bought an option at $50 and lost, His account balance lowering to $100.
Sam went on trading without relying on any system, just switch from one strategy to another. He made another six trades, three ITM and three OTM. His account balance dropped to $55, and his net loss was $145. He got disappointed and angry.
After depositing $200, Sam invested $20 and even $50 in a single trade
- By doing this, Sam didnt even think about risk management, as his risk per trade was 10% to 30% of his account balance. Even the most experienced traders never exceed 2%; otherwise, you may just blow up your account. Later, Ill explain why. For now, just accept it as the golden rule of money management.
Sam didnt stick to any system
- He made 5 trades based on one strategy, then switch to another, and then, perhaps, to another. This is another serious mistake. In order to decide whether a strategy works for you or not, you need to make 50 or, better, 100 trades. Then you need to analyze the result and conclude whether it fits your goals.
Sam tried to win his money back by raising the investment amount, which was already high
- Having made a few profitable trades in a row, which drew him crazy, and he increased the investment to $50. This is a sure way to blowing up ones account. Keep yourself well in hand and never break the rules you set.
Why It Is Important to Keep the Risk per Trade Ratio at 2%
Following the money management rules is crucial in binary options trading. For most beginner traders, the 2% risk per trade ratio is ideal and should be always kept.
With any trading strategy, you need to understand it really works and brings profits only when you give it a go and make at least 50 or, better, 100 trades. Before that, any conclusions will be premature.
Whatever strategy you pick, you will still have both winning and losing trades. Theres nothing you can do about it. What really matters is that you must win more often than lose. In order to get 75% return on your investment, your strategy needs to guarantee at least 65% win rate. In other words, you need to make 65 or more winning trades out of 100. Otherwise, your account balance wont go up and you wont have profits.
Financial markets are very volatile and often unpredictable. Sometimes, your strategy may fail you, and you may have a losing streak. If youre playing big, like investing $20 with a $200 account balance, youll be losing 10% of your entire capital in a every single trade. If youve got a few streaks like this, youll soon find yourself in need to top up your account.
You must keep your risk at minimum in order to survive such losing streaks and still save your balance.
Before you start trading, calculate your deposit amount based on the minimum investment required by a particular broker. If a brokers minimum investment is $5, your deposit should be $5*$50=$250. This way, youll be risking 2% of your account balance when investing $5 in each trade, and youll be able to invest at least 50 times, while testing your strategy. This method is both smart and relatively safe.
Experienced traders recommend maintaining the risk per trade ratio at around 2%. This means you are not risking more than 2 percent of the funds remaining on your account in a single trade.
How to Increase Profits without Greater Risk Exposure
You can use some simple rules and techniques to not only maintain your risk per trade ratio, but also to increase your profits. In this section, we will explain how to make the most out of your trading activity while keeping the risk within reasonable limits.
Keeping the risk per trade ratio means you cannot invest more than 2% of your account balance. How can you increase your profit then if you cannot boost your investment amount? The answer is simple: you just re-calculate your investment amount, including when your balance is growing.
Lets assume youve got $200 on your account, and you start investing 2% of your balance, i.e. $4. Now, suppose you managed to increase your balance to $250. As per 2% risk per trade ratio, you can ow invest $5 per trade, thus, increasing your profit potential.
However, the opposite scenario may occur as well. Lets assume your account drops to $150. Now you must not invest more than $3 (2% of $150).
It is quite a boring task to constantly calculate your investment amount, especially when you are into fast trading (with short term options), as this does take time.
This is why weve created special tools that automatically adjust the recommended investment amount and allow you to not only follow the golden rule of risk management, but also to never miss your chance to get more profits.
REPLY A COMMENT