So you want to get started with options trading but aren’t sure where to go for a broker.
Fortunately, there are many different brokers out there so it should be easy for anyone to find the perfect broker.
You just need some knowledge and research and you can sign up for a great brokerage account in no time!
What are Options?
First off, let’s familiarize ourselves with what options are. Calls and puts are the options you should know. Calls give their owners the right (but not the obligation) to purchase an underlying security on or before it expires at a set price while puts do the opposite giving their owners the right (and no obligation) to sell said securities on/before the expiration date.
You can think of these almost like pre-orders or reservations – they let you buy or sell things at a set price on or before a certain date but if you don’t want it anymore then you can just not use this option and let it expire.
Why Trade Options?
The main reason for options trading is hedging. You can bet on security prices going up/down without having to purchase the underlying security, instead only spending roughly 1% of its total value (depending on contract specifics).
Even seasoned investors still use options as part of their portfolio strategy despite the possibility of unlimited losses. In fact, if do your homework properly and sign up with a reputable broker, you won’t be subject to any additional risk than if you had bought the security in the first place.
Where to Find Good Brokers
The options industry is not overly regulated which means that most of these brokers are new companies who haven’t really established themselves yet but do still offer good trading conditions at competitive rates.
It can be hard to sign up with one of them since some might not even provide their contact information out on the open web (you need to sign up with them before you can get this information), but don’t worry—there are ways around this. The following tips will help you choose the best broker for you.
Choose a broker that provides free education
If you’re new to trading options or want to develop your options trading skills, look for a broker who offers resources for educating clients. There are many methods to get educated, including:
- Courses that cover online options trading.
- Webinars are available as live or recorded events.
- We provide online and phone one-on-one coaching.
- Contacting a larger broker with branches all over the country is also an option.
Test the broker’s customer service
For newer options traders, customer service should top your list.
Consider how you want to be contacted. Do you prefer live online chat, email, or phone assistance? Sign up for a free trial to quickly and easily test the broker’s customer service.
Assess the width, depth and cost of data and tools
Traders who rely on data and research for their livelihoods are like ducks with their heads in the water. Look for the following:
- A quotes feed that is updated often.
- The software includes support for technical analysis to assist you in determining your entry and exit points.
- The capacity to evaluate the trade’s prospective risks and benefits (maximum potential upside and maximum potential downside).
- What screening tools do they have?
Analytical and trade modelling tools, such as customizable screeners; the ability to construct, test and track strategies; and real-time market data from several sources may be required by those pursuing more complex trading techniques.
Check to see whether anything extra is required for the deluxe version. Many brokers give free delayed quotes that are 20 minutes behind market data, but they charge for a real-time feed. In addition, some pro-level tools may be accessible only to clients who fulfil specific trading activity or account balance minimums on a monthly or quarterly basis.