How to Manage Your Binary Options Trading Risks

Binary Options and Pair Options trading involves risks as well as benefits. It is a flexible way to trade based on your judgment on financial assets, and allows you to choose and monitor your risks. However, without an effective risk management strategy, options trading can also lead to substantial losses.

What are the Risks?

Binary Options and Pair Options are not leveraged products, so your risk is limited only to the size of your trade. Nevertheless, options are high risk financial products which are affected by rapid market movements and fluctuations. We recommend you to have a good risk management strategy. Otherwise, you may have significant losses, even over a short period of time. It is important to understand the risks and learn how to manage your portfolio effectively. Our Risk Disclosure Notice contains information about many of the risks associated with Binary and Pair Options trading.

How to Choose Your Risk Level with Floating Pair Options

Stockpair offers a variety of Pair Options on a wide range of instruments. Each Pair Option offers a return which changes with the underlying stock price, market conditions, time to expiry and other factors.
The rate of return (% return on your trade if the stock you picked performed better) is correlated to the level of risk that is inherent to the position. A higher rate of return means a higher payout if your trade ended up "In the Money", but at a higher risk. 
When you open a trade in a floating Pair Option, there will be a higher rate of return for the stock that is "Out of the Money" and lower if you picked the stock that is already "In the Money" (leading). If you want a lower risk, you can pick the stock which is "In the Money". If you want a higher risk and the opportunity for a higher return you can pick the stock which is "Out of the Money".

How Do I Manage Risk?

1. Understand your market

Before trading, it is important to understand the assets and markets on which you are taking a position. Learning each asset’s volatility and establishing the probability of sharp price movements is essential when considering the risk associated with each trade. For example, historically some assets are less likely to make sudden discontinuous jumps, while others may be more likely to make sudden movements. Financial markets by nature can move in directions that cannot be forecasted based on history of the assets.

2. Monitor your open options positions

Another important risk management practice is simply to closely monitor your open positions. Volatile markets can rapidly affect your position, and while a good understanding of the market may help you in predicting the fluctuations, there is no substitute for actively monitoring your account.

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