Our discussion here will revolve around How to Start Options Trading in India. It would prove to be a utility for beginners as we give end to end description.
For the experienced people, you can check in dept explanation, to catch up with any aspects you might be missing. Options trading as a whole, the very foundation of it is provided in this article.
An entire coverage is granted to our readers in this article. It commences with initial steps of preparation, to finding online broker, traders and capital management.
The entire layout is precisely drafted for the convenience and better understanding. So, our readers will be able to adopt the world of options trading and get along with it.
How to Prepare for Options Trading?
The 1st step towards starting options trading is preparations.
Preparation is a form of success, which is carefully crafted with precise knowledge and understanding.
It does not exclusively belong to just options trading, as preparation is must for every other kind of financial instruments.
There are indeed a lot of investors who play dice merely upon their luck, but lock being the only factor will lead onto doom.
Luck would not last longer, but strategies do, as they are a ray of hope when failure is discovered. On the other end, luck makes the failure obvious, if it is deemed to arise.
Taking charge of your option trading is a way of incorporating high return possibility, and it might become a constant ritual of return.
Check out our clearly depicted plan of preparation, which will take you up the ladder of profits if you adhere to it.
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Initial steps to Start Options Trading
Start by obtaining knowledge about Options and options trading. This doesn’t mean you need to learn every minute detail about options.
For starters, learn about – what basically options trading is, how it works in terms of investment, varieties of contracts available for investment, how to create spread orders and other order types.
Further, you must evaluate your time, i.e. the amount of time you are willing to cater. It must include the process of learning about the investment, research activity and planning or trade and finally the order placement.
Draft a precise manner in which you shall indulge yourself into the investment. Also draft he amount you are willing to cater for investment, the further funds expansion, etc.
You will find a lot of help regarding these aspects as you read the article further.
Pinpointing your goals
This step is of drawing straightforward achievement and goals. This includes being aware of what you want the end result of an investment to be.
Yeah, making money is the goal, but you need to be clear in terms of where you want this process to take you.
It may be as simple as, be able to make returns equivalent to a portion of your present income. It can also be – able to take options trading for full time, making more returns than your income.
Goals can also be as tiny as buying a product priced at certain rate, or to save funds, advocating goals is all what matters.
This shall be your source of motivation to invest in extra time and efforts to make proportionate returns.
Figure out a course of action
Since you have figured out your goal, the course of action will actually help you acquire it. The basics are what to do, how to do, and when to do.
There is no rule of thumb, or dos and don’ts, apart from the very fact that the plans must be customized, to personally fit into your goals.
Negligible course of action will hinder your power of coping up with uncertainties, and primarily – Focus.
Adjustments can also be incorporated in the already written plan. While you need to adhere to one, certain situations require you to adjust them.
We wish to inspire you to keep reviewing your plan from time to time.
Check out these elements you can keep notes of, as per your perception
- As we have explained, setting goals is essential. Ultimately, setting up short term as well as long term goals will do better for you.
- Compile all the parts of placing trades and cater proportionate time to go through all of them precisely. Time management is important indeed.
- Research must never come to a hold, where you need to constantly keep digging up profitable trade opportunities.
- You must also have your risk level sorted, alongside the money you wish to invest, and the management of the same.
- Here, you must figure out the trades you wish to make, and how you want to execute them. The entire process must be figured out.
- Keeping a constant check of the trades you have placed is the next requirement. Here, you can pick up on the mistakes you are likely committing and take measure to overcome them in future.
Options Trading Replica
There might be a slight ray of hope and expectation within you, where you want everything to go right, from the start.
We have a way to help you achieve this expectation, i.e. creating a replica of your aspired trades.
This is a theoretical concept, wherein you go along the plan you drafted without actually investing the money.
It involves following up on your aspired trades, before you take on the practical notion. This saves your money, and helps you rewrite your plan in case you find it not to be up to mark.
If your stock broker provides stipulated trading platform, you can actually follow up on it, as a lot of them generally do provide.
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How to find an Online Options Broker?
To Start Options Trading, the 2nd important step is finding an online options broker. Collectively, a lot of decision you take, make up to a successful trading and investment journey.
Inclusive of the investment instruments and investment amount among many other things, there is also an important consideration you make take into account, i.e. the Online options broker.
Spare yourself the hassle of switching brokers till you find the right one to invest with. Invest some time to find the right one prior to actually making an investment.
It is the ways of investment that the brokers offer, which turns the game in your favor, at least partially in terms of feasibility. This is however, solely projected by the top players.
A broker compatible for others might not be the suitable one for you. This is because the requirements range from one person to another.
Process of selection is quite easy, but the factors you need to look for might make the process a bit complicated. Ultimately, we provide the needful information, and this step would become a cake walk.
Here is a walk through the simple, yet complex process of finding an online options broker, i.e. the factors you need to check out for.
Charges of Stock Brokers to Start Options Trading
This part includes the charges, i.e. the commissions and the fees charged by the stock broking company, and the present market standards.
Commission if you wonder, is taken on per transaction basis, and thy account to a proportionate sums for many trades.
Particularly grouped brokers deploy rule of minimum commission, which helps in short terms trades.
Other many even take higher commission which is subject to the type of Option being traded. There are also other fees related to account opening, deposits, withdrawals, etc.
You must check for the charge structure, but does not imply you must go with the cheapest provider. You might need to look upon other factors, as a lot of brokers provide help for a higher amount of charge.
Precision and Efficiency of Orders
Transactions are meant to be executed on time, and hence, you must check the efficiency with which the brokers take charge and execute orders.
You must look out for the one who are on time and also at suitable price levels. On account of which, you must check the broker’s online platforms and precision with which the trades are carried on.
Online Platforms or Mediums of Investment
Concept of options trading is hard in itself, and you do not need an added issue of complex and hard to follow up website.
So, you priority must be to look out for a broker that provides a friendly interface, limited ordering procedure and other updates features, which would make your trading experience pleasant.
Safety Course of Action
You have your money invested with your stock broker and also the ownership of securities, i.e. the certificate is kept in your account.
Keeping it securely is the entire point of investment and hence, you must invest with a company that deploys a lot of safety measures, probably the latest ones.
Quality and excellence speaks for itself, and hence, the stock brokers who depict the same traits are highly recognized in the industry.
This is an assurance of trust and confidence in itself, and hence, there is a fair chance of having a splendid investment journey, being invested with the top and reputed market players.
Customer Department Assistance
You can be having a smooth sail from your end, but there is a chance an issue on part of the stock broker may arise.
Such issues comprise of technical difficulties, trade related queries, etc. Hence, you must invest with a company that has an efficient Customer service department.
- Choose a stock broker that provides array of investment solutions, and not solely options, which might come handy in terms of diversification.
- Being closely in touch with a company representative to delegate some trade orders, which you are personally not able to place.
- Margin amount maintenance terms, i.e. the minimal balance maintenance required.
- Perks provided by the company, such as incentives at the time of signing up for account.
Some of the Best Brokers available in India for Options Trading and fulfills all these criteria’s are Zerodha, Angel Broking, Upstox, IIFL, Sharekhan, Motilal Oswal, Kotak Securities, ICICI Direct etc.
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Trading Levels at Options Brokers
The 3rd important step to start options trading is to check trading level at these Options Brokers.
With fair amount of consideration, you might have chosen your stock broker. This will however not get you started on trading, as the next step is of Risk assessment.
This steps or barrier is for the stock broker to consider, where investors are grouped as per numerous circumstances and then allowed to make trades of certain class.
A specific level will be designated to you, after you go through a long process of account creation and trading level determination.
Brokers are indulged in this practice, since a certain fashioned trades are of nature where brokers are responsible.
Hence, they create levels according to which investors are grouped and risk exposure is provided. Here is how you may learn more about the trading levels.
Objective of Level Creation
Purpose of this process is of endurance of risk. Risk is a factor not only applicable for investors, but also is applicable for the stock broker.
For the same reason, the stock brokers choose to weigh in the customer’s interest and establish a relationship between the customer’s experience, funds and risk.
This is to ensure, the customers are only allowed to take up an amount of risk they can bear, and not above the bearable threshold.
Investors are not allowed to take upon a degree of risk they lack knowledge and experience about, since, the stock broking company is as well partially held answerable upon certain circumstances.
This limit ensures both the parties are protected and not exposed to high risk in any manner.
Designation of Levels
A series of data and report is to be submitted with the stock broker, by the investors, at the time of account opening.
These documents contain details of finance, previous records of investment and a basic interview process, where the stock broker asks question to the trader to understand what level of expertise they have.
Company’s compliance department is imposed with the responsibility of reviewing your data, and designation of level.
At times, you may also be asked to submit certain verification. Basically, the high net worth individuals and the experienced traders will be granted a high level.
Feasibility and Exposure Pertaining to Each Level
Basic and standard fashion of level followed in the industry is of 1 to 5 ranks.
1 has low degree of risk and people with this rank will be allowed only a set of investment strategies, while 5 has the highest degree of risk, where the investors are given a lot of free will, as it is perceived they have knowledge and idea of what they are doing.
Increase levels with your Broker
We can however not provide you a guaranteed manner in which you can increase your level.
The major fashion followed is, a routine check of investments and account, where, when the stock brokers perceive you are experienced enough, and will promote you to the next level.
Alternatively, you must appeal for an upgrade at times, which can be considered, given, you managed a good trading history with sufficient funds.
How to Identify Opportunities in Options Trading?
The most important step to Start Options Trading is identifying opportunities to make more & more profits.
So far, you know the initial steps and the process to select a broker. Moving ahead, we also gave you a view of, how you might be limited by your stock brokers into indulgence of certain complex strategies.
It is since both the parties are exposed to risk. Here brokers wish to see your ability of handling risk and complex strategies to dodge any issues.
Theoretical knowledge is a thing of course. But, the actually role is of implementing it practically by a course of opportunities identification.
Following up with the normal course of trading, this will make our investments count. This will not eventually lead to profit earning. Earning heavy returns are led by knowledge of how to make money.
Here, we put you through the manner in which you can identify opportunities.
Choice of Underlying Assets
As we know that these assets are derivates, the value of which is a result of underlying assets.
This expands your horizon, as you can buy or sell the contracts on a huge variety of underlying assets. These assets include stocks, foreign currencies, commodities and indices.
This opens multiple doors for you as you can select from among the lot and invest in one or more of these assets.
It seems fair to be investing in one asset, but investing in more requires adequate amount of research.
In this era where trading can be done via online mediums, and internet is a major part of our lives, access to financial instruments information is open.
Information found on the web is not limited, rather unlimited, which gives you all the major raw materials to carry out your research process.
Fundamental and Technical Analysis
This method combined, will help investors fetch handsome returns based on a perfect investment.
If you carry out the fundamental and technical analysis, you will be able to read the worthiness of investment and figure out the right investment.
Fundamental analysis generally means extracting information from accessible sources, followed by its analysis.
Here an investor can pin point a security’s right value and relate it with its price to declare a fair trade option.
Technical is however, oriented to future prices movements. Here, the data pertaining to the past or historical data is used to determine the price flow in the future, by deploying various other charts and graphs.
How to manage Risk & Money in Option Trading?
You must be accustomed with the level of risk you can take. Ensure you are no part of any risk you cannot afford to encounter.
Similar is the case for money, where you need to know your monitory capabilities. You must invest that portion of money which you can live without, not the one which you direly need to retain.
Check out for the manner in which one can attain fine balance of risk exposure and budget management
Construct a Trading Plan
Draw out a plan you will follow up. The plan which has all the parameters and guidelines figured out, including your investment amount and the risk level you are at.
The catch here is to encourage investments from only the portion of money catered for options trading. This way other kind of money is not used.
Risk Management by way of Options Spreads
Options spread is powerful by the mere concept it depicts. Through it, you can secure more than two positions in a contract, which are based on the same underlying security.
This is effective, as it creates a trading position, which can be considered an overall position.
Spreads are part of almost all the options trading strategies, solely because they possess the capability of reducing the risk up to a great extent.
Risk Management by way of Diversification
As we already know, diversification leads to scattered risk, diminishing the possibility of incurring huge loss.
You can choose to diversify your funds by investing across different companies, sectors etc, to balance out the risk eventually.
This way will not pile your funds in one place, where heavy loss is a possibility, but will rather scatter it.
Risk Management by way of Options Orders
You have the choice of placing different orders, which will simultaneously minimize the risk.
4 main order types are provide for you to open and close positions, among many other orders that let you manage your risk.
Money and Position Sizing
Managing risk and managing money is interconnected. The manner in which you limit your risk, you must also limit your budget as per the limited source of funds to have, to avoid losing everything.
The concept of positions sizing helps in a similar manage to take control of your funds.
How to Plan Individual Option Trades?
Here starts the actual process of buying and selling options. It is now time to gather up all the information from before and compile perfect trades.
Essential is, you plan out every other trades you undertake. Here is a plan you might want to consider
At the end of a research, where you have the investment opportunity figured out, you need to further figure out the ways in which you can extract an actual return.
This includes creating an outlook of the assets investment you consider to be an opportunity. This will help you form a pathway wherein you can earn profits.
Setting up of Targets
The basic perception of this step is to set targets. This can simply mean to estimate an amount of profit you wish to earn.
Contrarily, the kind of expectation you wish to hold. Also, you must include in the time frame within which you wish to reach your expectation level.
The same is in order to ensure your funds are not stuck up for a real long time.
Choice of Strategy
Infinite set of strategies can be incorporated, wherein you can combine various positions, solely with the motive of making profit or eliminating risk.
You can establish a forecast of your security and then eventually deploy strategies which prove to be the best match.
Position Size Determination
Now that you have sorted out the strategy, it is time to incorporate an understanding of the fair amount of investment.
You must put in a fair share of money, the amount you can afford to risk and loose (in case loss arises).
Entry Plan to Start Options Trading
Sorted the above steps already? You are good to go with securing a position.
Accordingly, you can wait for certain criteria to be met and then enter into a position or, you can proceed instantly and enter into a position.
Do the needful through stock broker, and ensure you already have funds in your account to instantly make the transaction.
It is when you enter a position, that you must start figuring out the likely exit position, i.e. if you want your positions till expiration or if you wish to exist sooner.
How to Monitor Option Trades?
Overflowing profits are not likely at the beginning of the journey. The course of investment must initially be inclined towards learning and experience, which will lead you to the right direction after some time.
A lot of things contribute to a successful investment career. One way through the same is – learn from personal experience.
The following steps are a plan of improvement we wish to render
Store all your Records
It is necessary you store your records of trades in order to monitor and study them. In this manner, you will establish an understanding of the mistakes you made.
You will be able to write the same mistakes off in future transactions.
Evaluation of Options Trades
This includes studying your trades deeply, i.e. the factors which contributed to the gains you secured. It also includes the factors which contributed to the losses you incurred.
This is basically studying everything till the roots, including the strategies involved and other relatable strategies.
Optimization of Options Trades
For this part, you must optimize the factors of success, and strictly avoid the factors of losses. Also, it is necessary you keep up with this process.
This is because the market is changing and you must try to cope up with the same, ensuring modifications are introduced to your strategies every now and then.
The same should be in accordance with the changing case scenarios.
Conclusion on entire process to Start Options Trading
Fine knowledge of all the steps and aspects we provided here will be the tie breaker, resulting into win situation for you.
The customary way to Start Options Trading is being well read. Also, we have the perfect guide to let you through the same.
Although it is not essential you know every other aspect related to options. But, it is essential you know the basics of options trading to be a part of it.
The article has all your need sorted. Needs that help in developing confidence in the rightful manner, without the need of depending up the factor of luck.
Open a Free Demat Account & Start Options Trading Now!
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