Welcome to this week's interview with the experts. This week we're in Limassol, Cyprus with Holly, who is a broker at Banc de Binary. We're going to talk about risk management.
Interviewer: Holly tell me how is it possible to completely eliminate risk? Is that possible in trading?
Holly: The first thing to understand is that no strategy in our system can fully abolish risk. Risk can only be managed. All successful traders carefully balance risk and rewards. So high risk equals high returns but with a reduced probability of success. Low risk equals low returns but with an increased probability of success. Nobody gets it right 100% of the time. The trick is to maximize your profits and minimize your losses.
Interviewer: And how do you do that exactly?
Holly: This can be achieved through analysis, so technical analysis for example, observing patterns that indicate future movement, and fundamental analysis, which involves looking at broader data from company information, industry news and so on.
Interviewer: What about other things like natural events, do they affect trading and risk?
Holly: Yes, obviously that's part of the fundamentals which you would look out for in the news.
Interviewer: And what about fear in the markets, is that a factor in trading and risk management?
Holly: Definitely, yes.
Interviewer: Do these technical and fundamental analyses work with all kinds of assets?
Holly: Yes definitely, a good strategy is to trade asserts which you are already familiar with. If you work in the oil business you'll already know about oil. So, commodities on the market that share major oil companies. Also though, beware because trading single assets restricts you and will limit you opportunities for success.
Interviewer: So what's your advice to your clients and to traders in general about risk management.
Holly: The best strategy is to go for a mix of high and low risk options. Make sure your high risk trades are based on analysis, not just assumptions. If you're not sure go for a safer option. If you have real doubts then avoid the trade altogether.
Interviewer: What if you have familiarized yourself with an asset and you done all the technical and fundamental analysis but somehow your trades are still going wrong. What's your advice in that situation.
Holly: Well, you can actually stop, but the best way to minimize any future losses, although you don't know when your bad run will come to an end, the best traders respond to a bad run by continuing to trade with reduced stakes.
Interviewer: So what about binary options? Are the risk management strategies the same there?
Holly: The very nature of binary options means that our risks are reduced compared to other types of trading, but as I've said no trading is completely free from risk. Lets look at binary options compared to Forex. With Forex you have spreads and commissions and this means that you are already paying an inflated price for currency. So any success you may have has to go above and beyond that inflated price for you to make a profit. However with binary options there's no spread, the rates are taken directly from Reuters and you don't pay commission.
Interviewer: Thank you Holly
Holly: Thank you.
George Milios is the founder of onlineforextrading.net, the binary options and forex news portal which is dedicated to providing you with all the information you need to successfully trade.