Options Paper Trading – How to Get Started and What You Need to Know

Options Paper Trading – How to Get Started and What You Need to Know

If you’re interested in learning how to trade options but aren’t quite sure how to get started, paper trading may be the perfect solution. Paper trading gives you the opportunity to practice your strategy while not actually risking any capital. Before you get started, here are some important facts about options paper trading that you need to know before putting your money where your mouth is!

The 4 Steps To Start Options Paper Trading

When you begin trading options, options paper trading is one of your first steps. Here are 4 things you need to know about paper trading before you begin. 

1) As a newcomer to options, paper trading is a great way for you to develop your own style of options trading before you actually make trades with real money. 

2) As with stocks, there are two types of risk for options: directional and price risk. While direction risk refers to how prices move in relation to your predictions (up or down), price risk refers specifically to implied volatility, which can have a significant effect on an option’s value over time. 

3) Option paper trading allows beginners an opportunity that most new traders don’t get: practicing their strategies without risking any actual money! 

4) Options paper trading gives you a chance to test out your strategy and see what happens when certain events occur. For example, if you’re using call options as part of a bullish strategy, what happens if prices go below $50? Or if they go above $100? Understanding these scenarios ahead of time will help ensure that when it comes time to place live orders, you’ll be able to act quickly and decisively in order to take advantage of opportunities as they arise.

Step 1: Register At An Online Brokerage

To get started, sign up with an online brokerage. Options paper trading is a tricky process and so you don’t want to be trading at a broker that makes it difficult for you. Fortunately, many online brokers offer paper trading accounts so you don’t have to take out any actual cash; your only costs are transaction fees (typically less than $10 per trade). Consider opening an account with one of these top-rated options brokers: Zecco TD Ameritrade . Each of these companies has a robust research library, strong customer service ratings, low fees—and paper-trading options. Step 2: Understand The Basics Of Stock Options: Before you can start trading in earnest, make sure you understand how stock options work. Stock options give investors the right but not obligation to buy or sell stocks at a certain price on or before a certain date.

Step 2: Fund Your Account

While options paper trading, or simulated trading, doesn’t require you to fund your account with actual cash, it’s still a good idea to fund your account with a small amount of money. Start by determining how much cash you’ll need for options paper trading. Typically, brokers require you have about $300-$500 in your account before you begin; although requirements do vary from broker-to-broker. Once you’ve determined how much cash you’ll need, open an account with a brokerage firm that offers free practice accounts (i.e., accounts where all trades are paper trades). OptionsHouse is one such brokerage that offers free practice accounts. To learn more about OptionsHouse’s free practice accounts, check out our OptionsHouse review . Once your funds are deposited into your new brokerage account, log into your online platform and select paper trade on any optionable stock or index option symbol listed on any exchange around the world. Now you’re ready to start paper trading!

Step 3: Get Familiar with The Platform or Study Manuals

Options paper trading is a bit different than stock trading. In order to options paper trade, you have to set up an account with one of several options brokers. Each broker has its own methods for setting up a platform, but luckily many are user-friendly if you take time to familiarize yourself with them. Some brokers also offer extensive study materials that can give beginners some basic knowledge about options markets. Many of these study manuals are available online on each broker’s website or through downloadable PDF files that can be read on your computer screen or downloaded onto your smart phone so you have them when you’re on-the-go. Once you’ve studied these manuals (or simply taken a look at them) it will be easier for you to get started with options paper trading.

Step 4: Start Your Practice

One of the easiest ways to ensure your options paper trading runs smoothly is to try out a demo account from a major options trading platform, like eOption, TradeKing or OptionsHouse. These companies provide free virtual platforms that let you get a feel for things without having to risk any actual money (although there are usually some restrictions on how much paper cash you can play with). Start by understanding exactly what kind of orders are available and how you can leverage them for your advantage in strategies like spreads and straddles. There’s nothing wrong with reading up on options terminology here before you go paper trading (it never hurts), but don’t spend too much time getting bogged down in fundamental analysis if that’s not your thing.