Binary Options Money Management The One Strategy you Really Need

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Does the Martingale Binary Option Strategy really work?

Does the Martingale Binary Option Strategy really work?

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Last Updated: Aug 29, 2020 @ 10:55 am

As the interest to trade binary options grows among traders worldwide, so as they are looking to explore every minute strategy that seems feasible and profitable. One of these strategies is the Martingale system.

Recently, i have seen quite a number of traders using the Martingale strategy as one of their primary ways of predicting the market movement.

The aim of this article is to point out (with reasons of course) whether the Martingale system of trading actually works.

Brief History of the Martingale strategy and How it works

A Martingale is one of the betting strategies that was developed and popular in the 18th Century in the francophone country, France. It was widely used among bettors for the head and tail coin game in the country. Since the coin has a 50% probability of turning up either head or tail in a single toss, this betting system suited the game.

This strategy had the gambler double his bet after every loss so that any one win would cover up all the previous losses plus a profit that is the same as the original betting size or amount.

Apart form the head and tail coin game, this betting system has also been applied to all games that have a 50% chance of either winning or losing like the Roulette, Casinos, Blackjack and others.

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The Martingale Strategy as regards to Binary Options Trading

This strategy is widely used by binary traders who use the “Call and Put” type of trading. These types of trading involve predicting whether the current price of an asset will either increase or decease in value after the expiry time. Therefore the Martingale can be safely applied because there’s a 50% chance of getting either a “call or put”.

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Here, the trader doubles his investment amount each time he/she loses. For instance, If I went for a “Call” on Eur/Usd and staked $10 on it and unfortunately lost the trade after expiry, i would stake $20 on the next asset. Another loss means that i would have to invest $60 on the next one and so on.

This is done in order to recover past losses and gain money equivalent to the original investment amount.

Take a look at the table below and see an instance of how this strategy works:

Trade # Trade Amount Trade Losses Next Investment Amount
1 $10 $10 $20
2 $20 $20 $60
3 $60 $60 $180
4 $180 $180 $540
5 $540 $540 $1,620
6 $1,620 $1,620 $4,860
7 $4,860 $4,860 $14,580
8 $14,580 $14,580 $43,740
9 $43,740 $43,740 $131,220
10 $131,220 $131,220 $393,660

The table clearly explains what you should expect from practicing the Martingale Strategy.

It is based on assumption and not a real data.

The table shows a case of an unfortunate trader who has experienced 10 losing streaks without a single win.

If he must recover his losses, then he must stake twice the value of the previous total losses (next Investment amount).

As you can see from the table, it can be pretty dangerous to apply this strategy since its just a gambling strategy. You can quickly get bankrupt if you don’t have enough funds to practice Martingale.

Assuming you trade different assets like stocks, indices and currencies all moving in different directions, you can’t expect to achieve a good result when you apply this strategy. There’s a high chance of accumulating big losses and this can wipe out your entire account unless of course, you have unlimited funds.

Another important factor that plays a role in Martingale is the trader’s emotion. Most traders don’t have the nerves to hold on and wait for the next profitable trade. They’ll be like, “Ah! Will these series of losses ever stop?” Once, you trade by emotion, then you can easily give up even when you’ve accumulated a series of losses.

Martingale trading system is only meant for traders with deep wallets and enough emotional balance to withstand any type of losses experienced. Unfortunately, many traders either do not have big wallets or are affected by emotions and therefore we advice that Martingale should not be used to trade Binary Options.

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Some often choose this strategy believing that it’s an effective money management technique. It is in no way a money management system because you will have to risk even up to 80% of your money to see that you recover your past losses.

An effective money management system in binary options entails not staking more than 5% of your capital on any single trade.

Even if you want use Martingale strategy, you should only do so as your last resort after your sound technical and fundamental analysis have failed you (although not likely).

The Anti-Martingale Strategy

This is also known as the reverse Martingale. It is a betting style where the trader increases the investment amount after wins while reducing them after a loss. The idea is to help the trader benefit more by winning trades and minimizing losses.

I do not recommend using either the Martingale or its Reverse for trading because trading depends on your level of financial knowledge and ability to predict the direction of the market correctly based on either your fundamental or technical analysis.

Besides, a good trader is supposed to develop a strategy that works for him in 85% of cases and therefore has no need to gamble with his precious funds.

Your Comments and Questions are always welcome. You can tell us your own view about the Martingale strategy.

7 Binary Options

When it comes to investing, especially when you are first starting out, experts will always tell you never to invest more money than you can afford to lose. This may seem like overstating the obvious, but it should also make you aware of an important point; there are as many losers when it comes to trading binary options as there are winners. This only highlights further the need for a well thought out money management strategy before you start trading binary options.

An effective money management strategy will help take the extra pressure off as you trade because you are using surplus income that will not bother you as much to lose if your binary option trading does not prove to be successful. A general rule when you are first starting out is to start making your initial monthly trades by using no more than 5% – 10% of your disposable investment income for the month and then gradually increase this to 20% – 30% a month as your binary option trading skills increase and you become more successful.

Here is how that works. Say you have decided that you have a total disposable investment income of $1000 for the current month to trade with. The 10% starting figure we mentioned means that your first trade should be no more than $100. You then make a binary options trade for $100 or you can do two binary option trades for $50 etc… If your option finishes out of the money your total disposable investment income for the month will be reduced to $900 and if your trade finishes in the money you will then have increased this total to $1100.

By only investing a small amount of your total disposable investment income to start, it allows you make more trades during the month and trading over this longer period of time and should give you a better chance of coming out ahead. It also will allow you to chart your results as the month goes along and adjust the total percentage amounts according to how your month is working out trade wise. This is a proven binary option trading strategy that will help you consistently maximize your monthly investment pot.

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Is It Possible To Make Money Trading Binary Options?

Trading binary options online has become possible in 2008. It was a new way to make fast profits online for financial speculators. Trading binary option is open and available to anybody over 18 (one should check local government regulation before trading BO).

Binary options allows the user to speculate and place trades, which are essentially bets, on the direction of financial assets from a basket of currencies, stocks, commodities and indices. In binary options your losses can never exceed your deposits and your return is clearly defined at entry.

It is no secret that trading on the world’s financial markets by buying and selling positions has made many millionaires. It is also a fact that the markets bankrupted many more. The line between winning and losing can be very subtle. While trading may not be for everyone, the unprecedented ease of access to financial trading online has certainly made a lot of people happy about new possibilities.

Is it really possible to make money? If so, how much?

The big question is can you really make money trading binary options? Short answer is yes, but it’s not that simple. Whether you make money or lose money really depends on a number of factors including your risk management, trading strategy, the options that you choose when you enter the trades, your broker fees, your trading psychology, etc. There are simply too many factors to consider but of course it is possible to win and make money, but it’s not as easy as binary options advertising has us believe.

Brokers will often entice people with all types of bonuses and ads that suggest making money trading binary options is very easy. Although the actual act of trading binary options is easier than Forex it is not easier to win and make money consistently in binary options.

Here is a mathematical formula to calculate break even ratio in binary options:

  • B – Break even ratio – (shows how many times you need to win to break even)
  • I – In the money ratio – (shows broker payout for winning trades)
  • Ot – Out of the money ratio – (shows your losses for losing trades)

Using the above formula you can calculate the break even ratio assuming a set of fixed parameters. Assume your broker pays you 90% for wins and takes 100% for losses.

B = 100% / 90% (in the money) + 100% (out of money)
B = 100 / 190
B = 0.5263

What this means is that in the case of a payout rate of 90% and 0% rebates on losses you will have to accurately predict 52.63% of your investments in order not to break even. This break even calculation can change quite significantly with different options. A 90% payout is very generous and rarely seen in binary options.

Let’s look at the numbers and for the purpose of further illustration let’s assume that we are dealing with a trader who has a trading strategy with 75% of wins. (There are numerous signal providers that achieve those levels.) 75% of wins is quite high for most standards. He also uses a binary options broker who offers only 70% of profit on each winning trade.

In one month he takes 52 trades and on each trade he puts $100. His total investment will be $5200. It averages out to about 2 trades per trading day. Let’s also assume that each trade has a payout of 70% and a return of 0%, as is the case with many binary brokers.

When we divide the total sum of his investment of $5200 between the 75% of winning and 25% of losing trades we split the working capital between $3900 which was spent on the winning trades and $1300 spent on the losing trades. Now let’s take the $3900, the 75% of his total trading capital, and add 70% of return payout on the winning trades which will produce $2730 of profit. His losing trades, the 25% of total trading capital, cost him $1300.

*The end result is wrong, it is $6630 which makes it 27.5% increase

So now that we know how much profit was made, let’s take those numbers and put them into the mentioned breakeven ratio formula to see how many times he actually needed to win in order not to lose any money at all.

This financial calculation is quite modest because it assumes a return of only 70% on wins where many brokers offer payouts over 80% and some brokers also offer returns on losses, only about 5-10%, but this will change the numbers significantly.

In addition, there are a few binary options signal providers who consistently achieve higher percentage of wins than 75%, which would also drastically improve profits as well.

So, only for the purpose of further illustration of what would happen if the overall wins were 80% and the return payout also 80% we’ll continue with our calculation. In this case $4160 is our winning capital, namely the 80%, and the remaining $1040, the 20%, is the losing capital. The winning capital of $4160 generates $3328 of profit (80% of payout for wining trades) and the losing capital of $1040 is simply lost, we’ll also use 0 return for losses in this calculation. So, out of 52 trades for $100 each the profit is $3328 and loss of $1040. Remember, that’s only in one month of trading.

As you can see the difference in earnings is huge between the first and the second example. A 24 percent per month as opposed to 2.5 percent per month is a world of difference. This is why it is so important to understand your risk exposure in binary options. Let’s see how many times he needed to win to break even:

Professional traders understand that and seek options and ways to keep the odds in their favor. For example trading with brokers that offer 85%-95% on wins and some return on losses. In addition there are ways to trade binary options to receive even higher payouts, as high as 200%.

Of course were profits can be made in a such a quick way there is inevitably going to be more risks involved. You can make money trading binary options online, there is no doubt about that, but you can also lose money. Following a reliable binary options signals or strategy or a professional trader in live sessions can really help you succeed in trading binary options online. It could be the difference between winning and losing.

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