How to protect your capital

[cornucopian]

Thanks guys,

I Have 5 k to begin with I'm using a trading platform with real time data. My brokerage fee is $45 and I will only trade straight Puts and Calls. I will not borrow money to trade at this point or for the foreseeable future.

I agree That paper trading does not allow me to train my emotions. But it does allow me to see if I can trade on a basic level.

My strategy is
trade puts and calls till i have 15k
introduce spread trading @ 15k ( i currently paper trade spreads as well separately.)

As others have pointed out, you are under capitalized and your brokerage fees are expensive. It is ok to start with a small amount and see, but consider getting a broker with lower commissions. $45 is outrageous!

I am positing a link from my broker's website. It talks about the 10 mistakes new options traders make.

http://content.tradeking.com/wiki/download/attachments/1819/WhitePaper001.pdf

I am not compensated for my post. It's just a good reference guide for newbies.

 

[beachlife]

If you really want to trade options then consider switching to US options. The brokerage is much lower, contract sizes are smaller, and the spreads are tighter.

But if you are trading directionally then I would question why you want to play with options. CFD's will give you good leverage, better position sizing ability and no time decay. $5k in a cfd account is plenty to start with and most brokers offer min $10 commission on aus stocks. You could easily position size for a 2% of account risk per trade which will keep your risk per trade relatively small.

Best of luck.

 

[bryan1111]

As others have pointed out, you are under capitalized and your brokerage fees are expensive. It is ok to start with a small amount and see, but consider getting a broker with lower commissions. $45 is outrageous!

I am positing a link from my broker's website. It talks about the 10 mistakes new options traders make.

http://content.tradeking.com/wiki/download/attachments/1819/WhitePaper001.pdf

I am not compensated for my post. It's just a good reference guide for newbies.

okay next question.

Who knows a cheap broker for options ?

 

[minwa]

If you really want to trade options then consider switching to US options. The brokerage is much lower, contract sizes are smaller, and the spreads are tighter.

But if you are trading directionally then I would question why you want to play with options. CFD's will give you good leverage, better position sizing ability and no time decay. $5k in a cfd account is plenty to start with and most brokers offer min $10 commission on aus stocks. You could easily position size for a 2% of account risk per trade which will keep your risk per trade relatively small.

Best of luck.

CFDs have a "daily financing charge" which is like interest = time decay in another form. You will also be fighting a harder spread than with liquid options. Options have gamma in your favour, you gain more deltas as position move in your direction and the decrease of delta as position moves against you slows it down. CFDs are prone to gaps, calls and puts are not.

 

[cornucopian]

okay next question.

Who knows a cheap broker for options ?

I am based in the U.S so I don't have any idea about low cost Australian brokers.

I know few u.s brokers that accept Australian citizens. The fees tend to be much lower. Interactive brokers is probably the cheapest option if you want to trade. They have minimum balance requirements and expect monthly minimum commissions, but it should be cheaper than most Australian brokers.

https://www.interactivebrokers.com.au/en/index.php?f=commission&p=options2


Can someone tell me why are brokerage fees so expensive in Australia? I see the average trade fee is about 20 AUD. Do the brokers provide better service or is just lack of competition? I pay $4.95 and I am looking for a cheaper broker.

https://www.amscot.com.au/register/rates/rates.aspx

 

[beachlife]

CFDs have a "daily financing charge" which is like interest = time decay in another form. You will also be fighting a harder spread than with liquid options. Options have gamma in your favour, you gain more deltas as position move in your direction and the decrease of delta as position moves against you slows it down. CFDs are prone to gaps, calls and puts are not.

I recently did a cfd trade on BHP for 2000 contracts. The daily financing was insignificant at $1.05. I didnt have to worry about which month, which strike, open interest, implied volatility, or market depth and the spread was 1c. And dont forget short trades earn daily interest, but again insignificant.

CFD's dont gap, stocks gap and when they do both the related options and cfd's gap with them.

Options have their place but cfd's are far superior for newbies learning with a small account. I traded options for years and would never go back.

 

[IFocus]

Paper trading is useful, but I think it gives a false sense of trading capabilities. It's easy to make money on virtual trading platforms, but you don't feel the emotional part of a trade when the money is not real.

.

Thanks guys,


I agree That paper trading does not allow me to train my emotions. But it does allow me to see if I can trade on a basic level.

Gents just on these points about paper trading if I can clear up a few miss conceptions.

1st rule is any trading method you think up you paper trade it to death and more.

2nd rule is repeat the above.

Paper trading actually proves your system and at the same time helping your psychology as you build a defence against all those nasty emotions.

How can you even begin to understand how you should trade a system if you jump in and get caught up with a whole range of emotions leading to making bad decisions.

 

[cynic]

NO!!! It doesn't!

This is a popular misconception with newcomers to the market. There is often a chasm of difference between the theoretical and practical arenas of human endeavour - trading is certainly no exception!!!!

Paper trading can be useful for eliminating some of the more obvious duds from amongst one's trading strategy candidates, but beyond that, it will tell one precious little about one's capability as a trader!!!

Gents just on these points about paper trading if I can clear up a few miss conceptions.

1st rule is any trading method you think up you paper trade it to death and more.

2nd rule is repeat the above.

Paper trading actually proves your system and at the same time helping your psychology as you build a defence against all those nasty emotions.

How can you even begin to understand how you should trade a system if you jump in and get caught up with a whole range of emotions leading to making bad decisions.

Whilst I agree that paper trading is a great way for newcomers to learn that little bit more about financial markets before exposing capital to risk, one further misconception needs to be cleared:

Paper trading might disprove some systems, however the trading of a system (whether live or hypothetical) usually only proves the performance of the system over the actual duration of the trading. It proves nothing about the future performance of the system.

Further to this, paper trading often neglects to account for important (and performance hampering) logistical considerations such as depth of market, slippage etcetera.

Failure to disprove a system by trading (whether live or hypothetical) does not constitute proof!!!!

 

[IFocus]

Whilst I agree that paper trading is a great way for newcomers to learn that little bit more about financial markets before exposing capital to risk, one further misconception needs to be cleared:

Disagree professionals paper trade, test or sim systems until they understand their volubilities. Newbies should do this and more to help understand market conditions where it might work this will determine their returns not the system.
Can you imagine NASA sending people to the moon without extensive testing or training, would a professional military not test and train the troops to deal with the emotions of killing some one?
Markets are emotionally harder than any of these

Paper trading might disprove some systems, however the trading of a system (whether live or hypothetical) usually only proves the performance of the system over the actual duration of the trading. It proves nothing about the future performance of the system.

True but the deal is you actually get to see what markets it works in. This is the holy grail if you insist on trading in a crap market or where you method is unsuitable because you don't understand you lose money the old adage of being out of the market is a position relates to this.

Further to this, paper trading often neglects to account for important (and performance hampering) logistical considerations such as depth of market, slippage etcetera.

Its not meant to

Failure to disprove a system by trading (whether live or hypothetical) does not constitute proof!!!!

Again its not meant to


Further to this a long time ago I belonged to a trading group of men and women the men all jumped in and were trading the women all paper traded.

The women traded far far later and made money .....the guys all loss money.......every single one of them me included.

 

[cynic]

Imagine an untrained "wannabe" professional sportsperson sitting in a crowd theorising about tactics whilst watching a professional competition.

Do you really believe such a person can expect to become an accomplished professional after months or years of such "training"?

Of course not!!! The spectator hasn't even played a single game!!!!

When people "paper trade" they aren't actually trading - they are simply observing price action generated by those actually playing the game!!!

Please note that whilst I usually recommend some spectating (i.e. paper trading) to "wannabe" newcomers, I believe it is important to confer an awareness of the scope and limitations of such practices.

They're a great way to preserve capital whilst observing price action and a relatively cost free method of eliminating some of the more obvious "duds" from one's arsenal of potential trading strategies/methodologies, however,hypothetically profitable strategies often fail when deployed in a live trading environment.

I've been witness to many newcomers deluding themselves into thinking that their hypothetical performance will translate into reality. Fortunately the real market usually proves very efficient at re-educating those unfortunate enough to subscribe to such unrealistic perspectives.

 

[Nudist]

As others have pointed out, you are under capitalized and your brokerage fees are expensive. It is ok to start with a small amount and see, but consider getting a broker with lower commissions. $45 is outrageous!

I am positing a link from my broker's website. It talks about the 10 mistakes new options traders make.

http://content.tradeking.com/wiki/download/attachments/1819/WhitePaper001.pdf

I am not compensated for my post. It's just a good reference guide for newbies.

Hi I just came across your post. Are you saying that you are registered with tradeking? My understanding is you need to have a US Social Security number to do that