Everyone who trades binary options should have a money management plan in place from day one. Those who know how to manage their funds in the best possible manner will always be able to recover quickly from losses, while simultaneously building consistent profits. There is not any one set plan that will work for everyone. However, it is widely accepted that each plan should include set rules for investment amounts and withdrawal procedures.
New traders will first want to consider their initial deposit. Each broker will have a minimum requirement that must be met before live trading can begin. Smaller deposits often result in slower profit growth, but if the minimum is all you can spare at the time, this is fine. The advantages associated with a larger upfront deposit include leaving room for error while learning how to trade well, and the ability to receive the largest possible deposit bonus.
Deposit bonuses are not for everyone, as there are conditions which must be met before these funds become available for withdrawal. In most cases, a binary options broker will as that a trade volume of 25 to 40 times the bonus amount be completed before bonus funds can be withdrawn. At times, the volume condition could be linked to both the deposit and bonus amount. Withdrawal of the initial deposit may or may not be possible while completing this condition, dependent upon the terms in place by the broker.
Once a deposit has been made, the next step will be to trade. This step brings with it the necessity to make decisions in relation to investment amounts on each trade. The goal is of course to never deposit too much or too little. One of the most popular strategies is to compound. This works by setting a specific percentage of total account funds to commit to each trade. Many traders use 5%, but this could be higher or lower depending on how much risk one is comfortable with. Using this method, investment amounts will increase or decrease along with total account funds.
Another option would be to simply set a dollar amount limit for each trade. This amount can be whatever you wish it to be, so long as it meets the minimum requirements as established by the broker. Such a plan could include a lower set amount for time when the markets are very volatile, and higher amounts when price trends are clear. Yes, there will be times when you wish you had invested more or less, but set limits will help to avoid many costly errors.
Profit withdrawals must be factored into a money management plan. In some cases, withdrawal fees will need to be accounted for. Many brokers do offer one or more free withdrawals, but most do ask that traders help to cover the costs of processing these transactions when requesting multiple withdrawals within the same month. It is possible to avoid these fees entirely, either by selecting a broker that does not charge them, choosing a payment method with no fees, or only requesting the set number of withdrawals allocated for each month.
The decision of how much money to withdraw is left up to the trader. Some brokers do have a minimum requirement, while others do not. The best advice here is to leave your account well-funded for future trades should you plan to continue trading with your chosen broker. This is especially true when a compounding strategy is being used due to the fact that a smaller amount of account funds will decrease the investment amounts. Withdrawing earnings can certainly be rewarding, but some thought must be given to future trading.
In many ways, money management is equally as important as trade selection and execution. Without a plan, traders are much more likely to allow emotion to dictate decisions, and this can be problematic. Although these plans can differ, the worst mistake would be to have no plan at all. Modifications can be made at any time, so consider starting out with some type of plan in place for your initial deposit, per-trade investment amounts, and withdrawals.