No responsible authority in the world of binary options would ever try to claim that it is a pursuit without its risks. Likewise, none would deny the fact that there will always be those who get entirely out of their depth with binary trading.
All too often, binary options trading is likened to gambling. The reason being that as it is technically impossible to eliminate 100% of all risks attached to any given trade, predicting outcomes with comprehensive accuracy is also impossible. Which in turn means that there is indeed an element of gambling involved. But at the same time, the fact that research, education and experience can vastly improve a trader’s likelihood of making accurate predictions, binary options trading is to a large extent completely different to traditional gambling.
There is, after all, far more to it than simply dealing cards or rolling dice.
That being said, one similarity with gambling binary options trading does bear is the way in which trading activities for some can become problematic. While it is unfair and irresponsible to suggest that binary options trading is ‘dangerously’ addictive, certain personalities and trading styles can most certainly lead to dangerous habits and behaviour. Responsible trading is all about taking full responsibility for your actions and knowing when and where the time comes to walk away. The problem being that knowing when to walk away represents a critically important skill in its own right – one that many traders simply do not have.
So in the interests of responsible trading, what follows is a brief overview of several warning signs of potentially problematic binary options attitudes, habits and behavioural issues:
First and foremost, the number one rule when it comes to any activity whatsoever with the potential for financial loss is to never, under any circumstances be tempted to chase losses. Nevertheless, it is a surprisingly common habit among traders and one that can be severely detrimental.
It’s a scenario most traders will be familiar with. You enter into a trade, you lose, you enter into another trade hoping to make up for your loss, you lose again and the cycle continues. Eventually, you find yourself at a point where recouping your losses is statistically impossible, but you are so clouded by emotion that you continue making poor decisions. Given the fact that your decisions are not being made on the back of logic, education and common sense, you’re only looking at further losses, over and over again. It is a sure-fire way of digging yourself into the kind of hole you may never be able to climb out of.
Chasing losses is in its own right an example of addictive behaviour and something to be avoided at all costs. Generally speaking, those who are prone to these kinds of mistakes are advised to steer clear of activities like binary options trading in the first place. If you cannot control your reactions and responses when facing a losing streak, you might want to consider alternative activities.
Using Money Earmarked for Other Purposes
One of the most important contradictory elements when it comes to success with binary options is careful budgeting. And of all budgeting considerations across the board, the single most important is that of exactly how much money you have available to use for trading purposes. This means a sum of money you are not only comfortable to lose, but that will not affect your current lifestyle should you lose every penny of it.
The problem being that for some people, this can all be much easier said than done. It’s a problem that somewhat links in with the above-mentioned issue – finding yourself in a situation where you are facing heavy losses and summarily doing your best to pull things back. As a trader, you need to be able to determine when the time has come to walk away and also know how to stick with a predetermined budget and trading allowance like glue. If you allocate yourself $500 per week for trading, $550 or $600 is unacceptable.
The moment you begin using money that has been earmarked for other purposes is the moment you confirm that you have lost control of your actions. You set yourself a budget and an allowance in the first place for a very specific reason. Which in turn means that if you are now going against your initial wishes, your judgment has probably been clouded and you are making unwise decisions. Once again, trading binary options is the kind of activity that should be considered exclusive to those who can maintain meticulous control over their budgets and spending at all times.
Hiding Your Trading Activities
If you are trading on a regular basis, have full control over what you are doing and everything is going relatively well, chances are you will be deservedly proud. By contrast, if it has reached a point where you are deliberately hiding your trading activities from all the people or lying, this instantly confirms that there is a problem.
When you begin hiding your trading activities or lying to other people, you are effectively admitting that you know what you are doing is either problematic or detrimental in some way. If it wasn’t, you would have no problem talking openly and truthfully about it. One common problem among traders who lose control is that of finding themselves glued to their trading accounts and habitually trading at all times, though doing their best to ensure nobody else knows about it.
Everyone goes through a rough patch with binary options trading from time to time and you may make the occasional mistake you would really rather not talk about. However, if you are routinely hiding your trading activities having realised things are getting problematic, you might want to think about taking the required action.
There’s a difference between being committed as a trader and being comprehensively preoccupied, perhaps even obsessed with trading activities. In terms of where to draw the line, this is something that will differ significantly from one person to the next. However, one red-flag warning sign that there may be a problem to address is when other areas of your life – personal and professional alike – begin to suffer as a result of your trading activities.
At home, it could be that you find yourself with less and less time to dedicate to the family and domestic responsibilities in general. At work, it could be that you are so preoccupied with what may or may not be happening with the markets that you are unable to do your job properly, or are frequently absent to focus on trading instead. In any case, trading is supposed to be an enjoyable and potentially rewarding activity – something that brings additional pleasure and benefits to the trader’s life, rather than taking over their life entirely and leaving little room for anything else.
This is one of the reasons why it is important for traders to do their best to work in accordance with a schedule or timetable, mapping out exactly where and when they will and will not be focused on their trading activities. Once the schedule is broken, you have officially lost control of the situation.
Trading with Other People’s Money
Last but not least, one of the most unbreakable rules when it comes to binary options trading across the board concerns where the finances themselves come from. Quite simply, if you do not have sufficient funds of your own to get into trading, you absolutely should not and must not trade binary options. It really is as simple as that. Trading binary options means only ever putting on the line money you can afford to lose in its entirety. If you do not have money you can afford to lose, trading binary options really is not for you.
But what’s even more dangerous than trading with money you cannot afford to lose is trading with other people’s money. This refers to both borrowing money from friends and family and taking out loans or using other credit facilities to fund your trading activities. As far as leading traders are concerned, using any kind of credit facility whatsoever for the purposes of binary options trading is one of the most dangerous mistakes any trader can make. It is a near-guaranteed way of falling into the kind of debt spiral from which there may be no return.
Trade using your own money and only your own money, period.