In today’s article, we break down the issue of trading bonuses. Bonuses are not new in forex or binary options. While they have been around for at least a decade in the forex market, they are just about 5 years old in the binary options market. Bonuses have however received a lot of flack from traders, regulators and market watchers as a result of some of the conditions that unscrupulous brokers have attached to them.
Bonuses are not free money you can just withdraw from your account when you want. They are meant to provide you with added capital to execute trades and cannot be withdrawn. The top binary options brokers also hope that the added capital will induce more trading volume and frequency on the part of the trader to improve their revenues. So bonuses should actually be a symbiotic thing. However, many traders are unaware of how bonuses should be used, which is why this article has been written to help such traders.
How Trading Bonuses are Structured
Bonuses provided by brokers come with volume requirements. In other words, the trader is expected to generate a certain trading volume after the bonuses have been applied to the account. The higher the bonus received, the greater the trading volume required to convert the bonus into a cashable sum.
Many of today’s top binary options brokers, especially a few that you will encounter on ProfitF website, insist on trading volumes of at least 20-50 times the bonus size. This means that if a trader is provided with a bonus of $500, then the required trade volume that will convert this bonus to a cashable amount which can be withdrawn from the account is between $10,000 and $25,000.
Bonuses are usually provided as a percentage of the account opening amount. Therefore the actual amount that a bonus volume requirement will come to will depend on the percentage bonus applied for.
How to Use a Bonus Responsibly
The first step is to talk with your account officer about any bonuses they want to provide. As a rule, the brokers never really talk about the volume requirement when getting you to open the account. However, the bonus terms and conditions are written out on the broker’s website. If you are going to use a trading bonus, you will see the bonus terms and conditions listed on the sites of the individual brokers. The terms and conditions will clearly state the volume requirements for the bonus. In discussing with the account officer, ask to have any bonuses provided capped at 30% – 50%. Never use a 100% bonus; it will make your work harder.
Secondly, work out your targets using your account opening amount and the provided bonus. Let us use an example of a bonus provision of 50% on an account opened with $2,000. A 50% bonus will translate into $1,000, totaling the account to $3,000. Assuming the volume requirement is 30 times the bonus amount, then the trade volume required to turn the bonus into a cashable amount is $30,000.
You need to split this amount into trade investment sizes in such a manner that it does not exceed acceptable risk management practices. Ideally, you should never invest more than 5% of the account into the market, and definitely not into a single trade. So you should spread a 5% exposure into several trades. 5% of a $3,000 account is $150. So at any time, you can split this into 3 trades of $50 each, or 6 trades of $25 each at any given time. Do not plunge the entire $150 into one trade. Remember, it is all about spreading the risk.
If you for instance, decide to use trades of $50 each, then you need 600 of such trades to meet your volume requirements. How you decide to spread them out is entirely up to you.
There are two strategies that can be used here:
- You can decide to aim to make the bonus your profit. In this case, you would want to generate the $30,000 trade volume by ensuring you even out your trades so that by the time the requirement is met, you are left with a bonus that can be withdrawn. With this strategy, you do not need to make more profitable trades than losses.
- You can decide to make profits on top of the bonus as you strive to meet the requirement. This means you need to make more profitable trades than losses to achieve this.
What types of binary options can you use to achieve your targets? Short term trades, One Touch trades, or regular Call/Put trades? The choice is really up to you. However, the targets should not be rushed as this can precipitate losses that can deplete the account before targets are reached.
Armed with this knowledge, you can visit the top binary options brokers to trade, but make sure you choose and use your bonuses carefully. The examples used here are purely hypothetical and are only designed to guide you on how you can structure your own bonus usage.