Trading options isn’t as daunting as it may look, although there are some pitfalls that beginners need to be aware of. Here are some tips for new traders who want to trade options in England.
Picking the right option is important
You may have heard about ‘in the money or ‘out of the money calls and puts. When trading call options, these are written on how much profit you make per share.
For example, if you buy a GBP/USD 1 hour binary call at 0.73509 with a strike price of 1.27000, then every pip that the GBP/USD goes up will result in you making approximately $1 (GBP/USD is typically traded over 1pip).
Never sell ‘naked’ options
It is a widespread mistake, and most brokers see it as unacceptable if the client cannot correctly answer questions about options trading.
In short, selling a call option when you do not have that asset is considered to be selling a product that you do not own. It is called ‘naked’ short selling and is always riskier than buying an option or trading stock.
Limited market presence
You can trade options on stocks with a limited market presence, although they will typically have higher premiums due to increased risk, you can profit from assets with smaller market caps by using put options with lower strike prices – e.g. you could buy GBP 500 Apple puts for $5 instead of buying GBP 1000 Apple puts for $10.
Options are expensive
Trading in the digital age means that you can trade any market from anywhere with an internet connection, but this also increases competition – and competition drives up costs.
It is why it’s essential to have a good broker who will reward you with low trading fees, tight spreads and fast execution times.
Different types of options available
You can use call or put options depending on what kind of price movement you expect (do not forget to check if your broker offers weekly, mid-term or long term options).
Not all brokers are equal
Your broker is your trading partner, and if you’re not careful, they will fleece you for every penny they can.
Some brokers offer higher payouts than others or may offer rebate deals for referring new clients to them – these are both signs that the broker cares about his customers.
It is also essential to check what instruments your broker offers; if he does not offer any binary options external providers offer, he’s probably not very experienced.
You should always ensure that your broker has a good reputation with traders and doesn’t have many complaints from clients about withdrawals taking too long etc.
Traders you should avoid
You will recognise these types of people by their tendency to yell ‘sell!’ or ‘buy!’ in chat rooms.
They also place the most significant orders on the bid and offer, which can have a knock-on effect for everyone else trading. These traders are called market makers – they want to take your money off you. Avoid them at all costs.
Trading is not straightforward
Although it’s possible to become an expert trader after just one week, it takes most people many months or even years before they master this art.
You may well lose money during that time, so please do not trade with money you cannot afford to lose because you will get very upset.
Some binary options traders are crooks
Many brokers have been prosecuted in court for not disclosing risks to their clients. These crooks prey on people’s ignorance and trust to make a quick buck.
They do this by paying ‘gurus’ and other fake reviewers who praise the broker without checking what they offer.
These reviews can be found scattered all over the internet, but use common sense when reading them – would you go into a bank and ask the teller which one is best?
You need to know when to get out
You should never trade with money you cannot afford to lose, but if you do it anyway, please remember the following important rule: cut your losses short and let your profits run.
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