A massive portion of the lure of binary options trading is possessing the capability to very easily determine risk levels. The most straightforward type of risk analysis is going to be to determine the total sum of money you could potentially lose or earn on each investment. This task is actually extremely simple.
As opposed to other types of investing, when trading binary options you are provided with all the details in advance. There really isn’t any uncertainty, nor any mysteries to cope with. This means that you never have to accept a level of financial risk that you aren’t comfortable with. You know the exact potential profit amount and exact potential loss amount each and every time.
Simple fiscal risk analysis will begin with your binary options broker. Each individual broker is going to offer you various payout rates. These rates are normally increased on higher risk investments. The payout rate will be posted along with each trade setup. This rate can then be used to calculate the exact amount of money you’ll earn should you purchase that contract and your price movement prediction be correct.
An example of this would be as follows. Let’s assume that you are interested in a basic binary options trade which is offering a payout rate of 85%. You decide to invest $100 and predict that the asset price is going to be lower than the strike price at expiry. Now, assuming that the contract ends with the asset price being lower, you would receive $185. Should your prediction be incorrect, you’ve lost $100.
Simple evaluation of earnings potential only requires some basic math skills. A number of binary options brokers will even take care of this for you by calculating your potential profit each time you enter your desired investment sum. Understanding that higher profit rates are typically linked to higher risk investments is essential. This means that even the novice trader can perform a quick financial risk evaluation.
Remember, it is not possible for you to ever lose a sum which exceeds your investment amount (on each trade). This is entirely different from other forms of trading which offer variable profits and losses. Risk evaluation is often attempted along with other forms of investment, but it isn’t a task which is easy to accomplish. This can make money management a tough task. Especially when you consider that these investments are typically not bound by time in the same manner as binary options trades.
When trading binary options, managing your account funds can be as simple as limiting your investment amounts and not risking what you cannot afford to lose. Since you now know that with higher risk comes higher profit rate offerings, use this as a simple guide when making investment decisions for each of your options trades.