Not every binary option strategy is strictly related to the actual trading. There are some which address the issue of money management. This is a very important thing for all trades, not just the binary option ones. Worst case scenario, poor management of your funds, can lead you to lose your account balance in a flash. Best case scenario, it can greatly aid your profit earning capacity. Regardless, it`s not good to approach this matter carelessly and you should carefully think about a proper strategy.

Money Management Compounding Strategy

The compounding method functions in two ways, it minimizes the damage on your account during times of bad trades and helps you build up funds with each successful trade. The core is to determine a percentage of your total funds to help you calculate how much to invest in each trade. For the risk averse traders, this percentage can be quite low. For the more risky traders, it can be up to 10%.

Here is an example:
If you have $10,000 on your account and decide to use 1% for compounding, the amount that you would invest on your upcoming trade is $100. If the trade proves to be successful, your total money balance will increase, which in turn will cause the next investment amount to be higher. If the trade was unsuccessful, then your total funds would`ve been decreased, thus causing the next investment amount to be lower as well.

With this example you can understand how this approach can keep your funds safe and also maximize your winnings simultaneously. Obviously, the point is to have as many trades “in the money” as possible, so this would result in an increase of the investment amounts correlated with the increase of the profits. This is what compounding is all about and it shows why it`s a preferred money management strategy by many traders.

Another plus of this strategy is that it helps you manage emotions and not worry about how much to invest. Being too emotional can be a great issue for traders and eventually lead to big losses. When you have a preset percentage, you can just keep going with it and not worry about the amount. This can be a great help to traders who are more prone to let their emotions overtake them.

Have in mind that the percentage you invest is not absolute and you can change it if necessary. If you`re experiencing a period of bad trading, then it might be wise to lower it. On the other hand, if you`re trading is going smoothly, then it might be adequate to increase the percentage, thus increasing the prospective profits. The strategy is quite flexible, but each investor should decide the best percentage for himself.

You can start compounding from the very beginning. Actually, it`s best to think about money management right away. You don`t have to wait for a bad trade to happen to start considering this, because this strategy can help you boost profits as well.

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