Options trading in the UK is increasing in popularity, and, as a result, there is a growing demand for options traders.
It does not matter if you are already an experienced options trader or just getting started; knowing more about market conditions can be an advantage in making decisions.
But what is options trading? Options trading allows individuals and companies to trade with options contracts by using a combination of ‘call’ and ‘put’ options with either low risk or high reward depending on strategy.
Traders speculate on how underlying security prices will move in the future, determining their daily profit or loss. For example, an investor who believes that Amazon’s stock price would increase within one month may buy Amazon’s call options expiring in 4weeks. If the price of Amazon’s stock goes up, they will profit from their call options, and if it does not, they will lose money on their call option but still retain ownership over the shares, which you can then sell at the current market value.
You should be aware that there’s a lot to learn regarding options trading and the underlying financial markets, so you should invest your time in doing so and reading anything and everything about the subject – from articles online right through to books and magazines. There are also plenty of free courses available online, which you can use to learn the basics.
Don’t Take Unnecessary Risks.
Of course, you’re going to have to trade at some point to better your options trading skills – but this doesn’t mean that you should do so blindly. Before placing any trades, you must know what you are doing and why you are doing it. If you’re not sure of your abilities, it’s best to wait until you are or use a demo account to learn how the market works.
Don’t Place Trades Without Knowing What Could Go Wrong.
Part of learning how to improve your options trading skills is knowing how to manage risk; if you don’t know about the risks involved with the trade you are placing, it’s unlikely that your trades will be successful. Always have a stop loss in place to minimise losses if something does go wrong; this is one of the most important options trading skills to have.
Avoid Using Market Orders
One of the biggest mistakes that amateur traders make is using a market order, which can be a problem as the price you buy an option for may not be the price it trades at when the market comes into play. You will have to wait until your order is filled, which could lead to unfavourable results if the stock moves before then.
Avoid Margin Trading Unless You Know What You Are Doing.
Margin trading is the process of borrowing funds from a broker to buy or sell an asset. It’s done on a short term basis and can be extremely risky. Unless you know what you’re doing, it’s recommended that you avoid margin trading altogether as the risk of incurring heavy losses is too high.
Consider Getting a Mentor
If you feel your options trading skills need some fine-tuning, then it may be a good idea to get a mentor who will help guide you along the way and show you the ropes. Whilst you can learn to trade from reading articles online, there is no substitute for real-world experience. A mentor will also open your eyes to the opportunities available in the UK options trading market and teach you about what doesn’t work.
Don’t Be Afraid to Ask Questions.
As with anything new, it’s natural for there to be a bit of trepidation involved, but if you are looking to improve your options trading skills, this shouldn’t stop you from asking questions. There’s no such thing as a stupid question when it comes to trading, so don’t be afraid to pick the brains of anyone that may have experience in this area.