How to Start Future and Options Trading?
How to Start Future and Options Trading?Almost every trader's favourite topic is future and options trading. Everyone wants to trade future and options and make profit from it as soon as possible.
However you must trade responsibly and not let emotions get in the way if you are willing to make profit from future and options trading. F&O Trading demand different knowledge, but with the correct strategy, you may succeed as an F&O Trader.
Before starting F&O trading, you should be aware of the following.
1. Risk in Future & Options Trading
Every rookie trader in F&O trading looks at the returns he will receive rather than the risk exposure, and that is an incorrect strategy. One thing you should always keep in mind that Futures & Options are dying assets; and therefore you should always trade them with extreme caution.
It is incredibly difficult to become profitable when trading F&O if you lack expertise and experience. On the other hand, it is highly possible that you might blow your account while making your trades.
An understanding that F&O is a Zero-Sum Game and likely a Negative-Sum Game due to brokerage, taxes, and other factors is crucial. Consequently, the loss of one trader is a profitable situation for another trader, and from every trade of yours broker and government are making money.
2. How should beginners approach Future & Options Trading?
You cannot begin F&O trading without the necessary expertise and understanding of risk management principles. Additionally, avoid entering F&O trading immediately as it could be dangerous for your account. You should first spend the first few months or so practicing equities trading, learning from your mistakes, and then come to F&O trading to get some expertise. Start off trading with just 1 lot, and learn from your errors to improve as a trader. You will most likely experience losses in the start, and that is totally fine. Everyone experiences losses, but you should work towards minimising them.
3. Mistakes to Avoid when Buying Options
In general, rookie traders are drawn to Options Buying to make quick profits, but the reality is Option Buying is more challenging than Option Selling.
Although it needs more knowledge and experience than Option Selling, many people nonetheless attempt it with the goal of making quick cash. Consequently, the following are some things to avoid when buying options:-
- Avoid Out-of-the-money Options: Trading Out-of-the-money Options is the best probable way to blow up your trading account. Theta Decay is your enemy an an Option Buyer, and you want minimum Theta Decay to happen, and for that, you have to trade In-the-money Options.
- Avoid Trading with Large Quantities: The most crucial step is selecting the appropriate position sizing from the available choices. The majority of new traders risk all of their equity in a single trade, which results in significant losses. You should only utilise 10-20% of your capital in a single position and your risk needs to be pre-defined.
- Avoid Greed: Your chances of winning are already lower if you are buying options. You should therefore be in complete control of yourself. Only a move on either side of the market, and one with momentum, makes Option Buying profitable. Therefore it crucial to realise that it is not imperative to trade every day. Instead, you should only focus on good opportunities or super setups.
These are some of the key points to keep in mind before trading options. Also, if you like this article, don't forget to share it with your fellow trader friends and family.
Happy Learning!
