A trader can make decent money trading binary options. But in reality, options trading is also associated with risk – regardless of the experience of a particular trader – and with risk comes the possibility of losing money. Yes, and instead of just counting what is lost and just moving forward,
you can turn the loss into a rather rewarding and more positive experience
. The use of risk management rules in options trading can not only reduce losses, but also make rules on binary options strategies. This article will show you how to use the experience of losses during binary options trading.
How losses are calculated from binary options trading
There are many ways to calculate losses and profits from trading, and it is much easier to do this than to calculate the losses and profits from trading stocks on individual assets. Whether the trader loses funds or makes a profit depends entirely on the direction of movement of the asset price, that is, the buy and sell prices, the trader does not need to think about the “Base” price of the asset and its price when selling. Moreover, unlike many other types of investing, losses and gains in binary options trading are seen as short-term and long-term.
An options trader looks at the change in the price of an asset in the market at the time of opening a trade. The amount of possible loss or profit is known to the trader even before he starts trading and makes a deal. This characteristic is unique to the binary options market. For example, it is up to the trader to decide whether he will determine the price of, for example, gold itself, which will exceed $1,500 at 2:30 p.m. If the trader believes that this will be the case, then he should sell the binary option.
To do this, it is rational to use binary options strategies and plan trades in advance. The price for which a trader buys or buys an option is not the actual price of the metal, but rather some value located in the range from 0 to 100. For example, in this case, if the price of gold is more than $1,500 at 14:30, then the price ratio is 40.00/45.00. (The first digit is the lot price, the price at which the trader sells, and the second number is the offer price, the price at which the trader can buy). The price of a lot/offer usually rises and falls throughout the day. However, despite this, the price will always stop at either 100 (if the price of gold, for example, exceeds $1,500 at the time of the option’s expiration) or zero (if the price of gold, for example, falls below $1,500 at the time of the option’s expiration). In each case, the amount of loss or profit of the trader will be determined by calculating the difference between the set price at 100 or 0, and the price of the trader’s option (the price at which the option was sold or purchased).
» Creating a binary options trading plan.
What to do with losses
Depending on the trader’s country of residence, he can choose several ways to handle losses. If a trader, for example, lives in the United States, then they can apply for a refund as part of income tax, indicating the amount of loss as a short-term capital investment.
Short-term assets are those assets that are valid for a year or less, and this is definitely about binary options, as some binary options have an expiration date of 60 seconds. Typically, U.S. investors can deduct about $3,000 from payroll tax or other sources of income, designating the loss as a loss on short-term capital investments.
If the trader’s losses for the year exceed $ 3000, then he can transfer this amount to the next year, then it will already be a loss on long-term capital investments. In any case, it is best to consult with a tax advisor to determine the exact amount that can be deducted from the amount of taxes. Limit of the amount of losses on binary options No one likes to lose money, but it still happens. Thus, it is important to understand what can be done in case of loss and how much you can afford to lose, and only then embark on investments.
Regardless of what happens to the lost funds, from a financial and tax point of view, But there is one potential positive point that follows even from the loss when trading binary options, and such a moment is the acquisition of experience. If, for example, a loss was incurred as a result of testing a new trading strategy, then this will be a signal that the trading technology should be changed in order to provide a greater probability of profit on the next transaction.
» Reducing risks when trading binary options
How to minimize losses on binary options trading
Binary options do not provide the trader with a mechanism that would allow you to automatically stop trading, but there are several ways to reduce the amount of losses and effectively manage losses. The first way to reduce potential losses is to trade with a strategy, and not just guess the movement of the market direction. The strategy offers you an already tested methodological approach to trading, the risk, as a rule, can be calculated based on the history of effective operation of the strategy. Binary options will allow the trader to know exactly how much they can lose, even before entering the trade, so there will be no unpleasant surprises for the trader.
Another, more practical way to minimize losses would be to choose a broker that offers a high level of protection and the possibility of closing a position early. As for protection, this is a percentage of the initial investment amount that the broker will return to positions that were closed without making a profit. This percentage can range from 5 to 15%, and can be a great way to make sure that all is not lost in the event of an unsuccessful transaction. The possibility of early closing of the transaction is similar to the one that allows you to reduce costs or even make a profit, and with a negative outlook, you can close the position earlier and not lose money.
Inference:
The basic rules for dealing with losses during binary options trading are: planning and strategies for binary options. It is necessary to treat losses as a lesson and be sure to make analysis and conclusions. Conclusions should be verified!
Traders who learn from mistakes and losses become professionals!
Tagged with: Risk Management Binary Options
