As experienced trader Larry Williams comments and explains in his book (which I highly recommend to get and read):
Unless you start to work with money management, you’ll only be a miserable speculator that sometimes wins, sometimes loses, but never makes a bunch of money. You’ll never reach the peak of trading commodities, because you’re only going to walk from one trade to another, collecting dollars, but not accumulating wealth.
Williams, Larry: Long-Term Secrets to Short-Term Trading
There is a lot of money management types for Forex trading, but less for binary options trading. That’s why I’ve prepared some methods that could also work for binary options. I am not saying that I always follow them myself, definitely not. We can’t mix and match everything together – this methods should not be used alongside with, i.e.: hedging.
Money Management Strategy “LET IT RIDE“
This strategy counts with all the profit from the previous trade for the following one, meaning what we win, we re-invest again and if we lose any of the three trades, we have actually only lost the initial trade.
First trade: $100 with 80% return = $180
Second trade: $180 with 80% return = $324
Third trade: $324 with 80% return = $583
Total profit $483, the biggest risk $324
Verdict: Extremely risky, but highly profitable strategy.
Money Management Strategy With Initial Deposit Withdrawal
This strategy counts on the fact that after the first win, you’ll withdraw your initial trade size so that in the case of another loss, you’ll actually not lose anything.
First trade: $100 with 80% return = $80( withdrawing the initial $100 base and continuing to trade)
Second trade: $80 with a 80% return = $144
Third trade: $144 with a 80% return = $259
Total profit $259, the biggest risk $144
Verdict: Less risky, but also less profitable, however you can live off this strategy on the market well.
Money Management With The 30% Rule
First trade: $100 with a 80% return = $ 180 (withdrawing $100 and another 30% that we have left(80-30%=$56))
Second trade: $56 with a 80%return = $ 100 (holding onto another 30% ( 100-30%=$70))
Third trade: $70 with a 80% return = $ 126
Total profit $226, the biggest risk $100
Verdict: Slow, but steady strategy. It won’t cause you a lot of stress and sweat, but on the other hand it is a little bit less profitable.
Author
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I've wanted to build a business of some kind and earn money since I was in middle school. I wasn't very successful though until my senior year in highschool, when I finally started to think about doing online business. Nowadays I profitably trade binary options full-time and thus gladly share my experiences with you. More posts by this author