Risk management entails the following:
1. Understanding that binary trading has nothing to do with gambling unless it is treated as such. The worst practice in binary options is trading without strategy, analysis or clear understanding of the trading process. Although pressing Call or Put buttons randomly and guessing a direction of price movement might seem like an exciting venture you should understand that binary options are financial instruments, not a Vegas casino.
2. Understanding what percentage of the account balance should be committed to a trade before opening a position. As a general rule, it is not recommended to invest more than 5% of the account size at any given time. Beginner traders often tend to risk far too much and, as a result, wipe their accounts clean in a short period of time. Poor money management and as a consequence financial loss may trigger strong emotions such as distress or disappointment and permanently put a trader out of the game. It is highly advisable for new traders to begin trading with small amounts and think about increasing the stakes only when they reach consistency in trading performance.
3. Understanding how much should be deposited in a new trading account. Prior to making a deposit you should carefully consider the amount you want to deposit, how you are going to manage the money and what benefits you are expecting to receive from the broker. As a general rule, smaller deposits are associated with higher risks, unless you are a guru of binary trading. You simply have less room for an error and quite often pressure of wiping out an account in a few trades is not helping to concentrate and make right decisions.
4. Understanding how often you want to withdraw profits. As discussed earlier the investment amount should not exceed more than 5% of the account balance. But what should you do when you start feeling confident in your trading strategies, want to trade higher amounts and make more profit? You have two options: either deposit more funds on your account or be patient, stick to the risk management rules, gradually compound your revenues and grow your account to a reasonable size allowing you to trade higher amounts. Therefore you should carefully consider your investment goals prior to placing a withdrawal request.