Posted by forex at 1:34 AM
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1. Decide which type of trading account to open. A full-service account is more costly but will provide you with personal hand-holding and suggestions by a seasoned trader. A discount trading account is much cheaper but provides no personal recommendations, although most discount trading accounts offer a wide range of trading tools and programs at little or no extra cost.
2. Learn everything you can about options and how they work. Understand what calls, puts, strike prices and expiration dates are. Familiarize yourself with options trading and risk at the Chicago Board of Trade's website.
3. Understand spreads (making a profit from changes in the prices between different commodities), straddles (buying and selling different monthly contracts to take advantage of differences in time value decay) and other exotic buying and selling strategies.
4. Understand what margin trading is and how it can both help and hurt you. Margin trading involves borrowing money from your broker and purchasing options with that money. A loss in a margined account can exceed the value of the money that you originally put into the account.
5. Do not trade options through guess work or hunches. Be prepared to sell out of a losing position before your trading account is wiped out. Do not trade options if you are not prepared for losses.