Best CFD Broker

10 Conservative Options Trading Guidelines to follow for maximum safety.

1. Use only money you can afford to lose

This is the most common advice given in options trading and one which most people choose to ignore to their own detriment. Using only money you can afford to lose means that if you hope to lose no more than $200 in a single trade, then you should use no more than $200 in buying options at any one time. The good thing about options is that the leverage it offers allows you to make a significant profit even with very small capital outlays and even if you get it wrong, all you can lose is $200, nothing more… if you follow the next tip.

2. Use only debit strategies

A lot of options beginners start out options trading using complex credit strategies. There are 2 drawbacks to this approach. Firstly, the complexity of some credit spreads caused beginners who are not used to placing options orders in the first place to enter the wrong orders or leg in the wrong way, resulting in instant losses. Secondly, credit spreads require significant margin which may not allow beginners practicing with a small account to use them in the first place. Using debit strategies allow you to control your losses as well. What you invest is all you can lose, period. You won’t lose more than you expect unlike some unlimited loss credit strategies.

3. Always virtual trade new options strategies

This tip translates to never using real money for options strategies which you have never used before. Always practice new options strategies on the virtual trading platform offered by your broker.

4. Choose the right broker

The right broker should fulfill all of the following criteria;

• discount commission.
• offers free real time quotes.
• offers virtual trading practice platform.
• offer advanced orders such as contingent orders and trailing stop loss.
• offers both stock and options trading.
• no call in brokers. In options trading, you want to be able to execute a trade at the click of a mouse without the frustration and delay of calling a broker who may not even understand what you want executed in the first place.

5. Always buy options or positions with at least 3 months to expiration

Unless you are a sniper sharp stock picker or using credit strategies which you want expire quickly, always buy options or position with at least 3 months to expiration. There is nothing more frustrating to see your positions expire before the stock starts to move.

6. Take advantage of low commissions to close out on expiration day

Most options brokers offer an exceptionally deep discount for closing out options positions on the expiration day of those options. Take advantage of this deep discount to close out positions that are at the money or very near the money instead of risking an accidental automatic exercise.

7. Use advanced orders to enforce your stop loss

Most people give in to their emotions when it’s time to take a loss thinking that the position might come back the next day. We all know what usually happens after that, yes, the position gets held all the way to expiration and then it expires worthless, losing 100% of its value. Yes, nothing is more difficult than trusting your human emotions to enforce stop loss points. That is why you must always make use of advanced orders such as conditional / contingent orders or trailing stop loss to automate your stop loss policy.

8. Trade for profit, not for fun

Most beginners trade options for fun more than profits. Their main aim is merely to use these overly hyped options strategies and see how they work with the aim of making money being secondary. If you don’t think a trade has a high chance of turning out successfully, don’t make it.

9. Use put options to hedge your stock holdings

Perhaps the best use of put options of all time is to buy them as a hedge against your stocks. If you have stocks which you are holding for long term investment purpose, consider buying LEAPS put options expiring six months to a year out as protection against catastrophic drops.

10. Avoid Out Of The Money Options if you intend to trade with all your money

The reasons why most beginners lose all their money in options trading in one go is because they buy out of the money options with all their money. This means that they will lose all their money even if the stock moved in their favor but not enough to bring the options in the money! Now, bearing in mind that you should only be using money you can afford to lose, buying only in the money options with those money give you even higher protection and lesser chance of losing everything.

Click to view Part 2/12, of a CFD Trading Seminar.

Part 2 covers ASX Ownership Survey and It’s Your Money.

What Are Stock Options?

Let’s start our beginner’s options trading discussion with the topic of what options aren’t. Stock options are not ownership in anything; unlike stocks, the holder of an option doesn’t possess part ownership in a company; this is simply an agreement between two investors that one party agrees to deliver something to another party within a specific time period and for a specific price. This eliminates the ownership part of the agreement as well as the idea that you must possess a particular stock in order to implement a position. Interested in selling short an option? In the stock market you have to borrow the stock to do it; in options trading beginners only need to understand that there is no ownership and no problem making the transaction.

What Are the Advantages of Stock Options?

o Leverage – Options also have the advantage of leverage; your option is purchased with a multiplier of 100 so your fortunes are affected by 100 shares of stock and not only one.

o Limited Risk – This is not true of all options investing, but overall options trading has limited risk. When buying options, your risk is limited to the price of the premium, or the amount you paid for the option. For example, if you buy straddle (the name for a particular option) and the price of the stock is wrong for your position, you can, in essence, allow the option to expire. This offers a great start in options trading for beginners since they can purchase options without the fear of staggering losses.

o No Risk Paper Trading – Thanks to the power of the Internet, paper trading has become a valuable asset for the options trading beginner. You simply register to use the software and follow the directions of the site. You will be able to implement positions and see the effects of your decisions on your “account”. Lose your money? No problem, it was only virtual money but a real experience beginner’s options trading.

What Do You Need To Do To Get Started?

Getting started is never really difficult. Remember, it is your first day. However, there are several things you need to do as a beginner in options trading:

1. Start Learning – There is no substitute for education. Read books about options trading, talk with others that trade options and search the Internet for information about options trading. Once you start investing your own money, you will be glad to understand options trading.

2. Create a Stock Trading Plan – This is just as important as your education. You need to outline your goals and objectives as well as your strategies in an unemotional manner. This way, when emotion tries to creep into your decision making process, you will have already decided your course of action.

3. Select a Broker – This is a personal, but important part of the process. You can implement your own trades but you need someone to actually place the orders. Some full-service brokers offer more services and most Internet brokers offer lower commissions. Even though you’re a beginner in options trading, define what you want from your broker and find someone who meets your needs.

4. Use Japanese Candlesticks – This powerful charting system will help not only the beginner in options trading but is valuable to the “expert” as well. Candlesticks will help you to find the trends in the market that most others miss.

Click to view Part 1/12, of a CFD Trading Seminar.

Part 1 covers Introduction and Current Market.

When trading Contracts for difference it is important to choose the right CFD provider. Generally most people look for the best commission rates, reliable trading platform, and widest product range however there are many other aspects of a CFD provider which you should consider.

Here’s checklist of the items to investigate prior to choosing your CFD provider:

1. What markets are CFDs offered on?

Some Contracts for difference providers only offer CFDs over ASX listed stocks others offer CFDs over stocks listed on many global exchanges. You need to work out what CFDs you intend to trade in your trading strategy and choose a provider that is able to offer the CFDs you plan to trade.

2. Can my CFD provider offer more than just CFDs?

Some Banks, Brokers and even CFD providers can offer CFDs but many simply ‘white label’ the offering of a specialist Contract for difference provider to offer CFDs as an additional product next to shares, futures and options. If you trade multiple products you should consider choosing a CFD provided that can service all of your needs at once, however, if you are only likely to trade CFDs, a specialized provider would better suit your needs.

3. What margins and fees do I pay?

All CFD providers have different margin requirements and fees. Generally CFD providers will charge you fees for the following:

- Holding a Position Overnight (financing) 
- Exchange Data 
- Transaction Fees (commission) 
- Trading Platform 
- Negative Account Balances

Many people look at commission charges alone without considering the financing cost that CFD providers charge when holding positions overnight. You should look at all charges holistically and take into account that most CFD providers will not pay you as much interest on your free cash as you would get from a bank.

4. What platform should I use?

Before choosing a provider you should trial a demonstration of the trading platform that they use. There are many types of trading platforms some are very simple and easy to use, whilst others are difficult and complicated. It is important to be aware that some CFD providers charge for their trading platform, in many cases these CFD providers have outsourced their technology and need to pay a third party. It is also very important to ensure that the platform that you use can offer the order types that your trading strategy requires, some platforms do not offer trailing stop-loss orders and others do not offer if-done orders. You should ensure that the platform you chose is suitable for your trading style and can offer you all of the features that you require.

5. What range of CFDs should my provider offer?

Aside from shares CFDs are offered over a variety of different instruments including foreign exchange contracts, commodities and indices. Some CFD providers do not offer CFDs on all of these instruments. You should determine whether these instruments form part of your overall trading strategy before choosing a CFD provider as this may be a determining factor.

6. What is a spread?

The spread is the difference between the bid and the ask price, typically spreads are only applied to index and foreign exchange CFDs. Crossing the spread is much the same as a paying commission, this is how CFD providers makes money from their clients trading activity. Spreads can vary from provider to provider, much like commission there is not one standard spread all providers charge.

7. What margins should I pay?

Each Contract for difference provider offers CFDs on different margin rates, these can be as low as 1 percent or up to 100 percent. The margin you pay will vary depending on the liquidity of the underlying instrument over which the CFD is based. You should be aware that margin can work in your benefit or against you. Should you choose a CFD provider that offers low margin rates you should carefully evaluate as to whether you wish to use the full amount of leverage offered to you by you by the CFD provider. Low margins should not be the determining factor in choosing a CFD provider but rather you should consider the product range offered by the provider.

8. How long has the provider been operating for?

You should ensure that your provider is well established and can offer you the customer service that as a new trader you will require.

Remmber as a new CFD trader it is important to shop around and choose a provider that will best suit your trading style.

One of the common misconceptions in trading the markets using CFDs, is that it’s simple to make money and double your account. Moving on one step from that you find people who get drawn into the marketing hype behind automated CFD Trading systems that promise and impressive path to fast riches. Today we’ll consider some of the pro’s and cons of trading with CFD trading systems.

The Easy Road to Riches or the Fast Track to the Poor house?

Many trading systems being marketed today claim to require little to no effort and a rapidly rising equity curve. Are these impressive figures truly possible? From my personal experience from having traded several forex systems over the years I can highly recommend that it is possible to profit using either a black box trading system or an automated trading robot.

Increased profits without the time commitment

The key to using trading systems is to understand your objectives, find a system that meets your time frames and use outstanding risk management strategies. Whilst placing orders only took 10 minutes per day we found our record keeping and position sizing calculations took the longest, but in my humble opinion was the most critical aspect to our success.

Futures or future contracts are contracts to exchange a good or instrument at a set price on a future date. They are considered to be profitable and popular financial instruments. But they are usually relatively expensive which denies traders with smaller capitals to participate in futures trading or to have the chance to diversify their futures investments to lower their risk. However there is a flawless resolution for all these problems. It is called CFDs on futures (contract for difference).

CFD is a contract between the CFD issuer and the trader the buyer/seller where the value of the profit/loss is the difference between the current value of the asset and its value at contract. Hence if a trader opens long with 0.01 lots on CFD BRNF0 (a crude oil contract) your profit/loss would be 0.01 * the price of the future contract when you opened the position – the current price of the future contract

The nature of these great instruments is that they allow the investor to go both short and long on futures with trading volume as low as 0.01 of the original future price (micro lots) allowing traders to diversify their portfolio and buy the futures they want at extremely lower prices. That is not all. It’s also worth mentioning that futures CFD is a leveraged instrument as well who work with a broker offering adjustable leverage on these instruments can increase the profit/risk ratio as they see fit (within certain limits set by the broker), something rarely offered by traditional futures traders.

CFD on futures is a great opportunity for beginners who want to enter the futures markets with their limited funds as well as experts looking for new ways to diversify their futures portfolios and minimize their risks.

Exciting profits await any trader who can take advantage of leverage across any instrument whether it is Contracts for Difference (CFDs), Forex or Futures trading. Whilst the profits can add up the downside can be devastating. Today we’ll take a look at some CFD leveraging basics to keep you on the right side of the ledger.

The absolute basic of leveraging your CFD, Futures or Forex account come down to this. When you use a high degree of leverage, your wins will be excessive and unfortunately your losses will be excessive. There is no way to avoid this basic rule. So your goal should be to use leverage to your advantage and maximize your gains whilst minimizing your losses.

Small stepping stones to leverage success

Once you’ve been bitten by the trading bug and you land your first big win using leverage you’ll likely find this is quickly followed by a big loss. Call it Murphy’s or whatever you like, but if you haven’t experienced it already you probably will. Whilst huge profits do seem alluring its important you put your concentration into protecting your downside and minimizing the amount of leverage you use. On that note, start off really small and don’t exceed more than 2 times leverage or twice your account size. This means on a $10,000 trading float you don’t want to take total positions that exceed more than $20,000.

Keeping your trading leverage at respectable levels

Here are some basic rule of thumb advice to keep in mind when using CFD, Forex or Futures leverage. If you have little to no trading experience, do not exceed more than 3 times your account size. So on a $30,000 account you don’t want to take total positions that exceed more than $30,000. Once you gain more experience you can consider using more leverage but at the outset, don’t exceed this amount. Perhaps with a little more trading experience you can consider using more leverage but remember, leverage is a double edged sword. Its brilliant when its working in your favor and devastating when its moving against you. Stay ‘small’ for as long as possible and enjoy a long, healthy relationship with leverage.

Contracts for Difference and Futures are both forms of financial derivatives. A financial derivative is an instrument whose value is derived from the underlying asset. In the case of CFDs and futures, the underlying asset may be a stock, bond, commodity or more. But the most common underlying asset for both CFDs and Futures is shares. There are three core differences between futures and CFDs. Liquidity, expiry dates and financing.

Liquidity is a standard issue for basically all futures exchanges except for the giant that is OneChicargo – the largest futures exchange in the world. Futures markets have become famous for slipped trade executions (slippage) and bad execution. This is because of the lack of volume associated with the trades. As futures are exchange traded products there is sometimes no counter party to execute the trade at the appropriate level, causing sporadic movements in the price of the future.

CFDs however have almost infinite liquidity because they are (mostly) not an exchange traded product. You are guaranteed to complete your opening order at the price you requested and that was displayed by your broker. While there is some slipped trade executions, this is usually due to synthetic price determination, not lack of liquidity.

Expiry Dates are another big difference CFDs have to futures. Expiry dates exist on futures because in the traditional sense, this is the date that the asset has to be delivered and the agreed price. Since most futures contracts are closed out before the expiry date occurs, the asset doesn’t physically get delivered but technically there is still one in place. This supports the financial markets and allows people who actually want to own the share (or other asset) the ability to obtain it.

Finally, financing is another differentiator between futures and CFDs. They are both leveraged products where there is a borrowing element involved in the purchase and interest is either paid or earned but CFDs are more like purchasing a share with a loan from the bank while futures have their leveraged components priced into the asset.