How to increase your portfolio in options trading?

If you are a type of person who can master handling fear and emotion. Especially if you are investing in a highly liquid and a rate of returns ventures. Yet, in the look for a secured, more predictable and non-expansive capital spending.

Options trading is a good fit for you!

What is a trading option?

For beginners in this kind of business, it is an ultimate jargon. Sometimes, it is confusing to understand how options trading works.

Traders of this sort are in full control of their investments. And, if you want to try this, you can do it by yourself. But this does not mean on relying on a  financial advisor is not necessary.

This is a simple investment, but you need to get a full understanding prior to you getting into it. So, test waters if it fits your need and passion.

You have only two options:

– position in long (buy) if your prediction of the market is going up

– or you are going to short (sell) if you believe the price is going down

And the next thing you can either do is to ride on the market fluctuation whether the price is going up or down.

The reward for this kind of investment is high. And this also means a higher risk is involved. But, there is a lot of risk management that we can do to cut the risk.

Applying calculated risk management techniques in your trade is a key to success. We will discuss this in the later part of this article, so read on to learn.

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What is a trading option available in the market?

There are several options for trading available in the market today.

Check out a few of the top firm for options trading we got for you:

  • OptionsHouse LLC
  • TradeMonster
  • OptionsXpress
  • Thinkorswim
  • TradeKing
  • Interactive Brokers LLC
  • and Charles Schwab & Co. Inc.

It would be best if you to do your assignments as well. You can search from their specific site and learn deeper. Get to know about their individual feature, functionality and trading spread and commissions.

Select a broker who can provide a better help in your trading options. Like getting a user-friendly platform, low commission, and a reasonable spread.

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How to start Options Trading?

Step 1: You need to find a brokerage firm that will suit your need, you may choose one of the options above.

Step 2: Determined how much capital you plan to invest in options trade. Brokers will help you assist your investment potential and your trading experience.

Step 3: You need to Open an account.

Step 4: Choose what kind of option do you get. There are four basic types of options orders such as Buy to open, Sell to open, Buy to close and sell to close.

Step 5: Decide to buy or sell an option. The usual buying option is by a contract of 100 shares of stock is equal to one contract.

Step 6: Trading is more on speculation. To start trading you need to predict the fluctuation of the market. Then you decide whether you buy or sell, but find the best price for the position. If you think the price will go up when you buy if you think the price will decline in the future the best decision to sell.

Then after you need to plan what price is the best exit or when is the best time to exit. Basically, options trading is as simple as buying and selling. It is like other financial markets like stocks, bonds and currency market (FOREX).

Risk Management Techniques

We all know that options trade is more on speculation. So there are possibilities that your intuition where the market price goes is wrong right? If that’s the case you need to protect your investment for possible huge losses.

In every position you make, you need to plan on the effective risk technique you are going to apply. This gives a calculated risk for unforeseen events or if something else happens. Since options trading is a long-term investment,

the best risk management is hedging. So that you can take advantage either the price is going up or against your current position.

We strongly recommend that you need to study the most common errors in options trading.

Verdict

Options trading may not suitable for everybody. Yes. This type of investment offers great profit reward for the investor. Yet there is also a high level of risk involved.

The good thing if you are well-guided, and you follow the rules of trading. As well as always place a risk management techniques in every position you make. There are higher chances of gaining than losing. So if you think options trading sounds good for you, learn more and get it!

 

Other helpful references:

What is option Trading?

Top Brokerage firm for option trading

Four types of option trading

How to avoid mistake in option trading

How to Avoid the Top 10 Mistakes New Option Traders Make

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