How to Get Started with Options Trading in 3 Steps
There are lots of different types of financial trading that you can do online, including stocks, forex, and CFDs. However, one type of trading that is less well-known is options trading.
This is mainly because options trading is a fairly advanced type of trading with high risk and high potential reward, so it is not something that people who are completely new to the financial markets tend to dabble in straight away.
However, if you are looking for a very interesting and challenging style of trading that will allow you to work with some fascinating strategies and get some real excitement from your trading, then options certainly has something to offer.
As long as you understand the risk and only trade with money you have budgeted for risky trades (that is, the money you can afford to lose), you may find options very rewarding.
Here is what you’ll need to do to get started:
#1 Learn The Basics
Before you can even understand the resources to study different options trading strategies and analysis and plan your own trades, you’ll need to learn the basic terminology and how options trading works in practice.
Some terminology you may already understand if you are someone who has traded on the stock market before, but you’ll also need to become comfortable with options specific terms. The most important terms to get you started are ‘call’ and ‘put’, which are the two different types of options you can trade.
A ‘call’ gives the holder the right to buy a security (such as a stock) at its current price before a date in the future. This is bought when the price of the security is expected to rise. A ‘put’ is the counterpart to this, where the holder can sell a security at the specified price before the expiration date.
Whether an option is a call or a put, there is no obligation for the holder to actually use it – if they choose not to buy or sell the relevant security it will simply expire, though in this case, they will lose the money they spent on the option.
#2 Get A Brokerage Account
Before you can make any trades, you’ll need to open a brokerage account.
This is something you can do the traditional way, but most people these days choose an online trading platform, which will allow them to execute trades instantly wherever they are.
It is important that you take the time to compare the rates and technological offerings of different platforms, and you should read reviews before making your final choice.
You can find thinkorswim reviews, for example, that tells you everything you need to know about that particular platform.
#3 Practice!
While it isn’t essential, most traders benefit from testing out a strategy on paper or using their chosen platform to track some trades without actually investing in them.
This can give you some practice and help you get a feel for how you will trade when you start using real money.
Once you have been through these steps, you will have the basics that you need to start out in options trading. Good luck!
Are you ready to get started with options trading?
