Every successful binary options trader plans their position sizing in advance. Even if you have an average entry strategy but with a good position sizing approach, you can still grow your balance over time. There are two main approaches to planning your investment size in binary options trading. In this article, we will compare flat investment and percentage investment, and you will see which method is better for you.

What Is Position Sizing in Binary Options?

Position sizing in binary options means deciding how much to invest in each trade. Binary options have a very simple risk management system, which means that proper position sizing is all you need in this niche to succeed. When you combine a reliable trading strategy with a money management plan that will allow you to grow your deposit amount over time, then you can trade consistently and make money in the financial markets.

Think of it as the weight you put on the fishing line. Even if you have the best bait and you choose the right spot (your trading strategy), if you put too much weight, then the fish (market move) may escape. Therefore, to succeed in fishing (trading), you need to use the correct way.

Flat Investment in Binary Options Trading

Flat investment means putting the same dollar amount on every trade that you open. For instance, if you start with $100 on your balance and decide to invest $10 per trade, you stick to this amount regardless of your results. This approach is often used by beginner traders who change the amount only after large milestones.

Benefits of Using This Method

• The method is very simple, and this is only one of the benefits of using it. You don’t need a calculator, and you know exactly what you are risking in every trade.
• Predictable emotional state. After each profit or loss, you will feel the same. This may help beginners be consistent and build discipline.
• Easy goal setting. Traders can quickly calculate how much money they can make and how fast they can reach their trading goals.

What to Remember

The main thing to keep in mind when using this method is that your investment amount remains the same regardless of your results dynamics. This is not a big deal if you adjust your position sizing every one to two weeks. For instance, you can do it on Sunday after watching your balance and thinking about how much will be affordable to you to deposit in each trade for the next seven days.

Percentage Investment in Binary Options

If you apply this method, you will adjust your position size after each trade. For instance, if you decide to risk 10% and you deposit $100, then your first trade will be $10. If you make a profit with a 90% payout and make $9, your balance totals $109, and in the next trade, you can invest $11. Therefore, you don’t change the percentage of investment, but the amount will be different in most cases (unless the trade resulted in a draw and you get nothing to add to your balance).

Benefits of Using the Percentage Investment Method

• Dynamic balance growth. When you close a profitable trade, the next investment will grow with your balance. Therefore, your profits will make you even more profits in the future.
• Loss protection. After closing a losing trade, you adjust your investment amount accordingly, and your next trade will be slightly tinier than the previous one. Therefore, you are unlikely to dig yourself into a deep hole.
• Steady and stress-free growth. When using this approach, you don’t need to think about whether your investment amount is too big or too small. You just invest 5-10% of your balance in the next trade, and the math will handle it for you.

How This Method Works for You

The best part is that with every profit, your next winning trade makes your next one bigger. Money starts working for you in this case. With a series of profitable trades, your account will grow faster than the previous method.

Comparison of Both Methods

To understand which one is better, let’s first compare both methods side-by-side with a 90% payout. You will see the outcomes of each method. In both examples, traders start with the same amount. Let’s look at the outcomes of the flat investment first.

Trade #	Investment	Balance
Start	–	$100.00
Loss 1	$10	$90.00
Loss 2	$10	$80.00
Loss 3	$10	$70.00
Loss 4	$10	$60.00
Win 1	$10	$69.00
Win 2	$10	$78.00
Win 3	$10	$87.00
Win 4	$10	$96.00
Win 5	$10	$105.00
Win 6	$10	$114.00

After a series of 10 trades with 4 losses and 6 profits, a trader could make $114. Let’s now see how a trader will perform under the same starting conditions, but if they use a percentage investment position sizing approach.

Trade #	Investment (10%)	Balance
Start	–	$100.00
Loss 1	$10.00	$90.00
Loss 2	$9.00	$81.00
Loss 3	$8.10	$72.90
Loss 4	$7.29	$65.61
Win 1	$6.56	$71.51
Win 2	$7.15	$77.95
Win 3	$7.80	$84.97
Win 4	$8.50	$92.62
Win 5	$9.26	$100.95
Win 6	$10.10	$110.04

The series ends at $110.04, which is almost $4 lower than the flat position sizing method. Now, let’s compare the outcomes if the strategy performance is improved and reaches 70%. 

Trade #	Investment	Balance
Start	–	$100.00
Loss 1	$10	$90.00
Loss 2	$10	$80.00
Loss 3	$10	$70.00
Win 1	$10	$79.00
Win 2	$10	$88.00
Win 3	$10	$97.00
Win 4	$10	$106.00
Win 5	$10	$115.00
Win 6	$10	$124.00
Win 7	$10	$133.00

The result of a series of trades is $133 when a trader uses the flat positing sizing method. Below is the table with the same parameters, but a trader uses a percentage position sizing method.

Trade #	Investment (10%)	Balance
Start	–	$100.00
Loss 1	$10.00	$90.00
Loss 2	$9.00	$81.00
Loss 3	$8.10	$72.90
Win 1	$7.29	$79.46
Win 2	$7.95	$86.62
Win 3	$8.66	$94.41
Win 4	$9.44	$102.91
Win 5	$10.29	$112.17
Win 6	$11.22	$122.27
Win 7	$12.23	$133.28

As you can see, the outcome after a series of 10 trades is $133.28, which is slightly above the outcome of the previous trader who used a flat position sizing method. 

Finally, let’s improve the strategy performance to 80%, which is quite an average performance for professional binary options traders. First, come the results of a trader who uses the flat method.

Trade #	Investment	Balance
Start	–	$100.00
Loss 1	$10	$90.00
Loss 2	$10	$80.00
Win 1	$10	$89.00
Win 2	$10	$98.00
Win 3	$10	$107.00
Win 4	$10	$116.00
Win 5	$10	$125.00
Win 6	$10	$134.00
Win 7	$10	$143.00
Win 8	$10	$152.00

After performing 10 trades, a trader has $152 on their balance, and we will compare this amount to the profits of the second trader, who uses a percentage method.

Trade #	Investment (10%)	Balance
Start	–	$100.00
Loss 1	$10.00	$90.00
Loss 2	$9.00	$81.00
Win 1	$8.10	$88.29
Win 2	$8.83	$96.24
Win 3	$9.62	$104.90
Win 4	$10.49	$114.34
Win 5	$11.43	$124.63
Win 6	$12.46	$135.85
Win 7	$13.59	$148.07
Win 8	$14.81	$161.40

The outcome is $161.40, which is almost $10 higher than the previous trader. 

Which conclusions can be taken from these examples?

Strategies with Low Win Rate 

If the performance of your strategy is about 50%+, which allows you to grow your balance, you can choose both methods. While a flat investment approach seems to be better when it comes to outcomes, your drawdowns can be larger as well. Therefore, at some point, especially in the case of a losing streak, you may feel a bit uncomfortable. 

When it comes to a percentage-based position sizing method, your outcomes are slightly below, but they are more consistent with lower drawdowns. However, for beginner traders, both methods will work well, and if you don’t want to recalculate your position size after each trade, the flat method may be preferable.

Strategies with Moderate Performance

Those traders with better strategies reaching 70%+ will not see the difference between the two methods. Again, the drawdown is slightly higher when you apply the flat approach than when you use the percentage method. 

At this stage, traders are in an equal position, and everything depends on your style and risk tolerance. However, if you start trading with higher amounts, this small difference in our example may turn into a higher spread. 

Strategies with High Performance

Finally, traders who demonstrate higher performance (80%+ of profitable trades) will show better results if they switch to the percentage position sizing method. When losses are rare, you grow your balance faster with each new profitable trade. The flat method loses competition at this point and can no longer provide the same results. This is why, as was said at the beginning of this article, professional traders prefer the percentage method as it gives them the necessary edge.

How to Start Using Percentage Position Sizing

Using a flat method is as simple as setting a fixed percentage at the beginning and sticking to this amount for a while. With the percentage method, things are different, as you will adjust your position sizing every time before each trade. So, here is a simple guide on how to do that:

1. Choose the percentage first. Well, here is the same thing, which is appropriate to both methods. You should define how much you will risk per trade in each trade. 
2. Calculate the investment amount before each trade. You should watch your current balance and multiply it by the percentage that you choose. For instance, if your balance at some point is $189, then your investment size will be 189 * 10% = $19 (we use round numbers only). 
3. Adjust your percentage accordingly. If you see that the percentage that you use for calculation is small or, conversely, too high, you can adjust it at any moment and stick to one that is comfortable to you.

Those who join Binolla can set percentage as a default method of investment calculations. By doing this, traders will significantly facilitate their calculations as they do not need to think about how much to invest in the next trade.

Once you click on the investment field on the right side of the platform, you can switch between numbers and percentage. Set the percentage you want to invest and your investment amount will adjust automatically depending on your current balance. 

Main Drawbacks of Using the Percentage Investment Method

The percentage method seems to be perfect, but you should always keep some aspects in mind to avoid disappointment. Here are some common drawbacks or issues that you may encounter when applying this approach:

• Your investment amount will feel small first. If you start with a small balance, your positions will also be small. However, this is relevant for both methods. It is not recommended to increase the percentage above 10% as you will break your money management rules.
• Slower recovery from losses. This is a definite drawback of the percentage method. If you see the tables in this article, you will see that after a series of losses, you will recover more slowly compared to the flat method.
• Risks of losing trading opportunities. A trader who uses this method will spend more time before each trade, which may lead to losing opportunities. 

Conclusion

Both methods can help you build a profitable system that will allow you to grow your balance in binary options over time. The flat method is very simple and works well for beginners. You should adjust your trade size weekly depending on your current balance size. When it comes to the percentage method, it allows you to set up your money management in a more flexible manner based on your current trading performance.

The best news is that you can’t be wrong about choosing a method. In both cases, you may grow your balance. However, your results may vary depending on your strategy performance. If your trading system has modest results, then you can apply both methods. If your results are better, you can apply the percentage method.

FAQ

Can I switch between both methods depending on the market conditions?

It is better to choose one method and stick to it for a series of trades. Switching between them too frequently makes it hard to track what is working. For long-term growth, you can choose the percentage method if your strategy shows 80%+ performance.

What percentage should I use if I am new to binary options?

To try trading for real money, you should invest not more than 10% of your balance, like 5% at the beginning. The goal is not about making as much money as possible, but to learn without hurting your balance.

Can I use the percentage method when trading with amounts under $200?

Yes, sure. Choosing a method depends on your strategy, performance, and not on how much you deposit initially. 

How often should I recalculate my investment amount?

When using the percentage method, you should recalculate your investment amount after each trade you make. When it comes to the fixed method, you should make adjustments on a weekly basis.

Which of the two methods is better?

You should decide it on your own. Both methods work well. If your strategy shows better performance like 80% or even higher, then you can choose the percentage method to grow faster.