Money management – Calculate the win ratio you need

Binary options money managementWhether you are trading with your own money or with a no deposit bonus, you should always have a plan and know what you are doing. In this article we will cover one basic aspect of binary options trading, which is the needed win ration to make profit.

When you look at different binary options brokers, you will see different return rates from about 60 to 350 %. Returns above 100 % are more difficult to achieve and often require bigger price movement. More often you will see in intraday trading returns between 70 and 85 %.

When you want to start trading, you should have at least a basic strategy. You should take note of all your trades to be able to evaluate your system.  When you are trading traditional markets like Forex, you can play with the size of your stop losses and take profits in order to reach the best results.

Binary options are different. In most cases they have a fixed price and a fixed return. So the only factor that counts is your win ratio, in other words the percentage of your winning trades. It will determine whether you will be profitable or not.

Here is a quick way to determine what win ratio you need in order to make profit. You can easily calculate it with the following formula.

Win ratio needed to break even = 100/(1 + return rate)

Example: You are trading a binary option that has a return rate of 80 % (= 0,8). So you will calculate this way:

Win ration you need to break even = 100/1.8

The result is 55.55. It means that you will have to win 55,55 % of your trades in order to at least break even, to be at zero (you don’t lose anything nor you make anything). To make profit, you will need to win more than 55,55 % of your trades. Anything below will mean a losing system.

Using this simple formula you can quickly see if your trading system will be profitable on binary options. It goes without saying that the higher the return rate is, the lower win ration you need to be profitable.

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