Sunday, November 15, 2020

Reinvestment of profit

 Reinvestment of profit as a money management approach.

The same as in life, specific skills and discipline are required in binary options trading, because traders are at risk or partial or complete loss of capital when they endeavor to earn money in financial markets. Apart from Standard Money Management Approach wherein a fixed percentage of the current balance is reinvested into a new option, there is also another approach to money management called Reinvestment of Profit.

The idea behind this method is to invest a small amount of the current balance into purchasing a CALL or PUT option, and in case of a successful prediction the trader reinvests it all into the purchase of a new option. Experienced traders consider such a trading approach as cyclical trading, rather than a one-time investment.

Let’s assume that a trader has a specific amount of money on his trading account and that he is ready to invest $10 into the purchase of a CALL or PUT option. For an easy calculation, the profitability of his chosen asset is 80% and his trading cycle will consist of five successful investments in a row.

If the first investment is successful then the profit will be $18. Some traders reinvest all of this money into the purchase of a new CALL or PUT option, and continue the cycle until they achieve their goal of five correct predictions in a row.