Four Common Mistakes Of Successful Binary Options Traders

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Contents

Top mistakes in trading binary options

All types of trading, including binary options trading, have a lot of common ground. Whether it’s ordinary trading or forex trading. Everyone, who has been involved in any of the types of trading, knows about the risks that each market participant will bear. But without mistakes, a trader can not get valuable experience and develop his winning strategy. In spite of that, there are still a lot of accompanying factors that will influence your trading. To reduce the damage from trading binary options, check out our top of the most common mistakes that traders make. After reading this information, review your trading methods.

Avoid mistakes in trading is almost impossible, because they are an invaluable experience. The more experience you have, the easier it will be for you to trade in binary options world.

But there are many, so-called, typical mistakes that traders make in the process of trading. They need to be minimized. And trading binary options will be much better.

Our hit parade consists of the most common mistakes:

Making big deals or waiting for a miracle

Almost all novice binary option traders make this mistake. Some of them try to break a big jackpot after a series of winning trades. Others, on the contrary, want to return the lost money. All these operations, as a rule, go beyond the scope of their trading account. In trading binary options, you always need to follow the plan of your actions. Long-term planning of your trading operations, skillful management of your risks and capital will give you a much better result. Avoid transactions that carry greater risks and amounts of money that go beyond your trading strategy and account. The probability of success in such transactions is extremely small. To prevent loss of capital, study management methods. Risk management, hedging, also, no one has been canceled.

Carrying out trading operations through unverified brokers

To start successful trading binary options, each trader faces a choice of a broker. But not everyone pays enough attention to this. How to check the broker. First, you need to see if this broker has a license to carry out its activities in your country. But the broker may lose the license, so this factor should be taken into account together with others. One of the most important is the age of the broker. The longer the broker in the market, the safer it is to deal with it. You have to read a lot of reviews about the broker you are interested in. You have to trade on a demo account, check the level of support. Do not immediately rush to invest your money. Test everything before you get started.

Promotions and bonuses

Market counts a lot of brokers who provide bonuses or additional insurance for your investment. Most often this type of insurance is applied from a certain amount of the transaction. All these tasty things should encourage you to start trading. Often this is the main case to hurry up and immediately start trading. First of all You need to focus on the process of trading. To begin with, you will need to learn the basic things in this branch. For such purposes, it is best to use a demo account. So you can save the broker’s bonuses and extract from them the maximum benefit with real trading.

By focusing on getting bonuses you will have the risk of losing your initial deposit. That’s how to appear another disgruntled man trading binary options, which will run to write an angry response, feedback or comment.

Lack of concentration

Many traders in pursuit of money try to master all the strategies in one day. And then they run to apply them in practice. As you probably already understand, it is unlikely that they will succeed. Haste in this matter is not needed. The key aspect of trading binary options is the definition of specialization. To do this, you need to stay on your favorite asset, learn about it all the necessary information and become an expert on this asset. Only in this case can continue to study other assets, strategies and other training materials.

Remember always, in trading with binary options you do not need to hurry. You will have plenty of time to try all the strategies and types of assets.

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Trading on emotions

Self-control is one of the most important qualities of a trader. But sometimes everyone is inclined to make emotional decisions. And, as you understand, this will be badly damaged by the result of your binary options trading. If you notice that you have got into excitement or have opened a position in the hope of seeing a miracle, then you will not see a miracle. Moreover, often so traders spend all their invested money. Remember, trading binary options is not a casino. Here luck accompanies those who are able to make decisions with a cold head. The market does not understand the language of emotions. To succeed in trading, always keep them away. This will give a chance to trade much better. Also you can avoid unnecessary losses in the process of trading.

Trading to the last cent

The feeling of excitement of many traders contributes to their rapid failure. Since many of them consider it a matter of principle to bring the trading process to the end. A large percentage of traders do this on emotions. Many of them do this under the influence of Martingale’s strategy. But this strategy is not appropriate using it for gambling on the part of the trader. Apply this strategy, like all others, with the mind. Many binary options traders also begin to trade until the last after a series of successful deals. Because they think that they will be lucky this time too. This kind of trading sooner or later will lead to the ruin of the trader’s trading account.

The lack of a logical structure of the trade process

Set up the logical structure of trading at first glance is not difficult. But the trader will face many difficulties, namely the emotional side of each person. Reactions to positive and negative results affect the course of trading, as they affect the emotional makeup of each person. To adjust your plan to the trader, you will need to perceive the trading process as a job that he must learn to perform perfectly. And as we know – all our mistakes are nothing else but an experience. Building a logical structure will make our trading even more profitable.

Insufficient market analysis

To obtain a stable profit at a high level, you need to constantly analyze the market. The best way to analyze it will be daily market reviews. This will help you always be aware of what is happening with your assets. Actively follow the latest news on the analysis of the markets you need. This daily “communication” will give you the opportunity to acquire a lot of ideas, and discipline and patience will help you to succeed in trading with binary options.

Chaotic actions

Money loves silence. Everyone knows this proverb. In trading, the same rule applies. To bring bright thoughts and images into your head, you need to surround yourself with an atmosphere of tranquility. This will give you the opportunity to take action according to the plan by which you are bidding. In this case, you will not have to wait long for the profit.

The use of questionable strategies

Strategies for trading binary options are quite a lot now. It is difficult for a novice trader to choose the right one for himself. Many traders actively use independently developed strategies. Some of the traders willingly share and exchange them. It is necessary to understand the moment that those strategies that work for some traders may not work for others. Since each trader has his own strategy. Ideally, you will need to learn and test strategies in order to build on their basis a successful and profitable strategy.

Be ready to work hard. Do not be in a hurry to get upset after the first failure. Remember that all strategies behave differently with a certain type of assets and in a particular market.

Conclusion

There is no limit to perfection. Trader binary options need to work well before finding a good strategy. It takes a lot of time for traders to find and improve trading strategies for binary options. All beginners need to remember that there are no ideal strategies. We need to constantly work on them, so that strategists are always relevant. Do not be afraid to make mistakes, this is an experience that in the future will bring you money. Revise your binary options trading process after reading our top of the most common mistakes. Preventing them will help you succeed in trading binary options much faster.

The Truth About Binary Options: #11 Facts

#1 Avoid Unlicensed Binary Options Brokers

Why are unlicensed binary options brokers dangerous? Although officially outside EU/USA it’s not required for a binary options broker to be licensed, it is very much recommended to trade with a licensed broker. Some traders and many governments doesn’t care if a broker is licensed or not and they treat all them the same way, as if license doesn’t provide any advantage or goodwill. Actually, it does.

There are a few advantages for a trader. First, you have a chance to complain if you face any kind of fraud, like delay of payments, blocked account or manipulation of market data. CySEC has fined many brokers and the fines were not nominal. Second, a licensed broker cares of his reputation, because when a fine happens, this is a huge news in the industry and competitors will be happy to make such case as loud as possible. So in many conflicts you will be able actually to negotiate effectively, just telling the broker, you can go all the way to the regulator.

CySEC, based in Cyprus, is the most widely used regulator and it is also very reachable and active, but there are others, who work with binary options brokers, like UK’s FSA, BaFin from Germany, Spanish CNMV, Indian SEBI, – all good.

Only make sure, that the broker’s license is currently valid, as in some cases brokers were deprived of licenses due to various wrongdoings, or have abandoned regulators voluntarily.

#2 More Than 50% of Traders Lose Their Deposit on the First Day of Trading

How not to lose your deposit on the first day of trading? Unfortunately, it’s a common situation. A person comes to binary options or to forex trading or to any market all and loses all the money he has got to trade during the very first day. So how to avoid this? The strategy is very easy – don’t use the whole of your deposit during the first day.

The first day of trade is your first test. Can you stay cool, can you keep your head cold, can you limit yourself and keep your trading within firm borders of 10 – 20% of the deposit. If you can, you can be a successful trader.

Control your emotions, control your behavior, stick to your strategy,- those are the main qualities of good traders. Knowing how to use the charts and trading tools is secondary.

You will master the market if you can master yourself.

#3 Shady Brokers Will Try To Convince You To Keep The Money (Until You Lose Them)

How to withdraw large earnings from binary options brokers? So, you made it and you have earned thousands, or even tens of thousands dollars on binary options! Congratulations, but it will not be a complete feeling, until you don’t have a significant sum in your pocket. And here are a few moments you should know about withdrawing lots of money form binary options broker.

  • First, a broker will try to convince you to keep the money. Of course, brokers are not really used to deal with winners, only as little as 1-10% of traders win and withdraw significant money. But they have strategies to make the numbers of withdrawals less. They will offer you huge bonuses, a personal manager, risk free trade, secret strategies,- everything to keep you trading, trading big, risking and eventually making a mistake. Don’t succumb. If you have in mind a certain amount of money you want to withdraw, stay cool and stand firm. Get your hard earn profit, celebrate, and then risk with the remaining bank.
  • Second, there are limits. In all the advertising brokers promise 1 hour withdrawal and usually it works with small sums. But deep inside terms and conditions you will find, that a broker actually can be very slow in sending your money, they can start a very slow so-called “confirmation” process, and sometimes it will take months to get your winnings in full, particularly with small brokers.

So trade with a large licensed broker (like IQ Option, Binary.com or Olymp Trade) and have a clear strategy – how much money you are ready to keep and don’t let any “exclusive” offers shake that.

#4 What Are The Three Worst Mistakes Of A Beginning Trader?

First of the worst mistakes is trading on a very short timeframe, when you can’t predict anything and rely on fortuity, not on calculation.

Second, lack of risk management. You must know and control your risks. Don’t do too many deals in a short period, or don’t bet on vey “costly” deals when you use too much of your deposit. Those are the ways to lose everything, in case of mistakes it will be pointless even to analyze them, because you will have no money to strike back and use the experience you always gain from your losses.

Third, choosing the wrong broker. You can be a genius or you can learn to be a very good trader and make lots of profits, but if you choose the wrong broker, you will be cheated and the broker simply will not pay you. So always choose a licensed broker with good reputation.

#5 What Is The Main Quality Of A Successful Trader?

Self-control is the main quality of any successful trader, you will not find a really successful trader who makes rush decisions and keeps braking the borders of his strategy.

You need to set the limits, how much you can afford to lose, how much you are ready to spend on one deal, how much risk you are ready to afford in your strategy,- and stay within those limits.

Before each deal you need a clear idea, why are you doing this and why it will work, if you are mistaken – recognize this, take time to analyze, make new strategy and keep going.

Remember, you need to limit yourself both in situations of losses and high wins, so that you will not lose too much in one case, and leave the game as planned, taking the profits in another case.

#6 How To Double The Amount Of Successful Deals?

The answer is – make less mistakes in your trading. How to do it? Trade on longer timeframes.

Why longer timeframes are better? You will have more time to analyze the situation and make a decision on whether to make a deal or not. The more time you have to decide, the less mistakes you make.

By the way, if you choose not the first class broker, shorter timeframes are even more dangerous, because lots of frauds and cheating on the broker side are carried out with traders, who choose shortest timeframes.

Reduce the amount of your deals, increase the time between your deals – and you will lower your risks and raise your profits.

#7 Why 99% Of Trading Systems Don’t Work?

Lots of brokers offer trading systems to their clients nowadays, as well as other parties on the market, like financial consultants and various market gurus.

There are two reason why most of those systems don’t work.

First, those ideas may have been brilliant at first. But any successful strategy, when it is promoted and offered for copying by many traders, eventually simply stops working.

Second, some strategies are actually designed to work against you, those are the strategies offered by brokers. Yes, you may benefit from them for some time, but in the end the broker wants you to lose and you will lose if keeps working within the inflicted strategy.

The only strategy that works is your own strategy, when you choose the required risk tolerance, trading instruments that you understand, and timeframes that are not too short.

#8 What Are The Three Common Delusions About Binary Options?

  • People see the high profits of binary options trading and lose sight of high risks. Risks and profits are interrelated, if there’s a chance to win a lot, there’s a high chance to lose everything.
  • People want instant success. With binary options you can earn quick money, yes, but this will not last. If you are a beginning trader, who instantly wins, you will probably experience losses very soon. Be ready for a long game and, lots of high and lows and keep control of your emotions in good times and in bad times.
  • Easy money – people think binary options trading is a very easy thing, but it’s not. You will have to learn to be a successful trader, and you will have to pay for that education – with your nerves and with your money.

#9 Is It Possible To Become A Millionaire By Trading Binary Options?

Many people ask the same question: How to make millions by trading binary options? First, there are no credibly cases of millionaire traders, who made fortune on binary options. A more realistic strategy to earn millions, is start with binary options and forex, build small fortune and move on to other markets, where you can earn millions.

There are two things to consider, if you want to make millions with your trading.

First, you can’t just come to the market and become a millionaire immediately, the secret of millionaire traders – they all have vast experience, that helped them to create a unique trading strategy, backed by some brilliant ideas. To have a brilliant idea, that will be a base for a winning strategy, you’ll need to have lot’s of ideas. And that means test lots of ideas and lots of strategy, losing and winning on the way.

So as a beginner you should be ready for a long game.

Second, how much money you make depends on how much you can put in to start with, and to earn millions you’ll have to put in hundreds of thousands. But for hundreds of thousands binary options market is simply not safe enough.

#10 Why You Shouldn’t Trust Your Binary Options Broker?

Whatever your binary options brokers tells in his advertising, he makes profits only when the traders lose, so he is not interested in your success.

Of course, it doesn’t mean that you can only lose. On the one hand, there’s regulation, and good binary options brokers are accountable, on the other hand, there’s competition, and brokers value their reputation and don’t want scandals.

But you should be ready, that even the best brokers will want to cheat you.

First, some brokers offer you managers, that give trading advice, to some extend that advice could be helpful at the beginning, but the broker will not want you to end up with huge winnings, so on later stages advice will be misleading.

Second, the brokers will try to convince you to trade more and to take more and more risks. They will offer exclusive conditions, only to keep you trading. Don’t listen, have your own limits and take out money when you win.

#11 Do You Read Terms And Conditions?

In any industry terms and conditions will contain surprises, that will go against what you see in advertising or what sales people tell you.

In binary options there are several things to consider, so make sure you read terms and conditions before you choose the right broker.

First, some brokers will charge you with 2-5% of the money you want to withdraw, sometimes there’s even a minimum limit of this charge, 10-30 USD (but no maximum limit), so if you withdraw 50 dollars of winning, your broker will want to keep 30 of them. This is not because a broker wants that 30 dollars badly, this is because a broker wants you to keep going, keep trading. So in such case just understand, that your broker charges this money and withdraw your winnings anyway, if such was your strategy.

Second, your broker may have the right to keep your money if they are not satisfied with your documents, officially it is said to be targeted against money laundering. But in fact it is often used to keep the money of hugely successful traders. Your broker doesn’t reject your withdrawal, it just puts it on hold and keeps asking for more and more documents, that may last forever. So trade with a licensed broker, in this case you will have an option to complain.

Finally, there are commissions, and with commissions you can do nothing. Some brokers charge commission if your trading account was inactive for 60 days, some – charge several dollars every month from every trader, others charge commissions on your winning. For this you just need to be aware of.

How To Trade Binary Options Successfully: Complete Guide

Maybe you feel you are now ready to start trading in binary options, and you are excited. Everyone who is getting involved in binary options trading wants to profit from it. You want to know how to master binary options trading. Many will get involved because they have been told they can double their money quick. Unfortunately, that’s not always the case. In fact, many of the best getting involved in binary options trade end up losing and quitting the trade altogether. Many binary options brokers will not tell you this, because they profit when the traders lose. Regardless of how many trading tools, strategies, or round-the-clock financial markets are available, many traders do not achieve the success they wish for.

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The fact that most people do not profit from the trade has not kept people away from it though. More people continue signing up on binary options brokers’ platforms hoping to make some money there. It is estimated that only 5 percent of the people who get involved in binary options trading profit from it. Five percent might sound like a small figure, but bear in mind we are talking about millions of people around the world. There is, therefore, a good number of people profiting from trading in binary options. So, what does it take to profit from trading binary options? What do you have to do to know how to trade binary options profitably? Our hope is that this article can help you successfully trade binary options. Let’s dive in and explore.

We are going to divide the plan on how to trade binary options successfully into two.

1. Basic Steps – this step with show you how to start binary options trading.

2. Strategy

Basic Steps

These are basic steps that you should take to ensure that you are set to trade binary options successfully. These are steps that should be employed by everyone seeking to trade in binary. Please note that these steps do not guarantee winning results, but they will certainly go a long way in ensuring you get the results that you desire. We are going to look at six common steps (assuming you already know what binary options are and how binary options brokers work). Let’s get to it right away.

6 Basic Steps to Successful Binary Trading

1. Choosing the Appropriate Broker

Why do you need a broker to trade binary options? You can only trade in binary options through a binary options broker since the capital threshold for the main market is very high. It is estimated that there are over 400 binary options brokers around the world currently. These brokers have different services and, therefore, the broker you choose plays a huge role in your success as a trader. Some of these brokers are actually scammers. Always go for a reputable, licensed and regulated broker. Your success as a trader depends a lot on the resources and features offered by your broker. Some brokers will offer educational materials and resources while others won’t. You need to get a reliable and trustworthy broker. Keep in mind that the brokers make a profit when you lose.

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2. Start Small

Many people and the brokers themselves will tell you that starting with a demo account is the best way to get started. I beg to differ! However, Why? I mean you don’t have to stake your money with the demo account, so you get to learn slowly.

You see, most of these binary options broker accounts give you a virtual financial market on the demo account. They will not give you access to the real market because in the actual sense there no capital in your account. It’s more like learning to ride a bike by pedaling on a stationary bike. You could still start with a demo account if you are a complete novice, but don’t dwell on it a lot thinking you are learning a lot. It would be unfortunate for you to get involved in the real financial market thinking you know a lot only to end up losing a lot of money because you actually know nothing. My advice is to start with a real account, but start small. Start will small amounts.

3. Managing Risks

This is one of the most important, if not the most important, aspects of trading binary options. If you have no risk management skills, you might as well consider yourself to be gambling rather than trading. Risk management starts with the minimum deposit. Do not deposit money you don’t have. By that I mean;

  • Do not deposit money into a binary trading account when you have pending bills
  • Do not borrow money to trade binary
  • Do not deposit money that is not yours

You need to understand that you cannot solely depend on luck while trading binary. Traders who depend on luck do not last. Once you have your deposit on the trading platform, do not stake all you deposit at once. A general rule is not to use more than 10% of your deposit in a single trade. Chances are that you will lose a couple of times. Give yourself a chance to redeem yourself once you make a wrong prediction. Statistics show that a majority of the binary options traders join a platform, make the first deposit, fail to manage risks and loses all the deposit, then quits and never trades again. That brings me to the next step.

4. Keep the Emotions at Bay

People get carried away by emotions and take too many risks, or quit before they have really explored binary trading exhaustively. The same way you are advised to keep the emotions and attitude away from a workplace is the same way you keep them away from binary options trading because things are not always going to go your way. There are two emotions that are quite detrimental to your trading endeavors;

  • Fear- many people, will make people fail to make a lucrative trade because of fear. You counter fear by having a strategy and sticking to it. We are going to look at strategy next.
  • Greed – greed does to you the opposite of what fear does, but you still end up losing. Greed leads you to take too many risks. Again, it is tackled using strategy.

Keeps these two emotions, and generally all other emotions at bay while trading. Get a strategy and constantly focus on how to improve it. Once you have established a solid strategy, stick to it so long as its working.

5. Personal Discipline

If you do not have personal discipline, you might as well not think of getting involved in binary trading as well. Indiscipline and laziness will kill your dreams of successful binary options trading on arrival. You need to be able to handle high-pressure situations. They need to reason fast and reason logically. Also, learn to stay put even when things do not go your way. Things will fail to go your way a lot of times in your trading endeavors, especially when you are beginning. That’s why many people never make it out of the beginner phase.

6. You Never Know Enough

You can never know everything there is to know about binary trading. You will be shooting yourself in the foot the moment you start thinking you got the perfect strategy and you know it all. The learning never stops. Concentrate on constantly improving your strategy. That improvement will reflect on your winning strategy. Many binary options broker platforms require you to have over 60% winning rate to make a profit.

Strategy

The strategy is the magic word in any binary options trading space. Having a binary options trading strategy is your best bet if you wish to make anything trading in binary options. If you have no strategy for trading in binary options, you are basically gambling. Gambling with binary options has been proven not to be sustainable time and time again. Gambling with binary options is even worse than gambling on pure betting sites and casinos. At least you have the chance to win a jackpot and get life-changing money on the betting sited and casinos (they are rarely won though).

Strategies are based on the financial market behavior. To have a strategy, you need to have some analytical skills or employ a third party that can help you with the analysis. You as the trader relies on statistical and analytical data to analyze the financial market. This approach is usually a bit difficult for beginners to understand, and most of them end up quitting. The strategies developed through the analyses are the most reliable though. There are a lot of resources developed to help you understand the analysis process and the charts. There are no best days to trade binary options. Most of the trading platform run for 24/7.

Below are three of the most common approaches to coming up with a trading strategy.

1. Overall Performance Analysis Strategy

The asset you may choose to trade with is attached to a certain company. The operation of that company is going to have an effect on your trades with the selected asset. Therefore, you would want to concern yourself with the performance and attributes of the company. You need information such as; how the balance sheet of the company looks, cash flow status, income statements and more before you purchase an option.

Also, concern yourself with technical aspects such as employee and partners satisfaction. Generally, this strategy is based on observing the company of the asset you be trading with and the whole industry at large. They will help you make judgments about how their stocks are going to perform.

2. Technical Analysis Strategy

This is a popular and less complex strategy. It is employed by many successful binary options traders. This strategy involves studying and analyzing the past performance of a certain asset and using the findings to predict the future. Analyzing the past gives you a picture of the behavior of an asset in certain conditions. The findings will give you a certain level of certainty of what is going to happen if you anticipate the asset is going to experience similar conditions ahead.

Time is also a crucial factor in binary options trading. For instance, the best time of day to trade 60 second binary options, is during the day when there is a lot happening that effects the trend of the financial markets. During the day is the best time to trade binary options currencies. The is no best time frame to trade binary options though. It depends on how well analyze the previous trends at any given time.

This strategy does not concern itself with the intrinsic value of the asset. As a trader, you do not have to go through the financial statements of a company. There are trading tools used for the technical analysis such as moving average and Bollinger bands and many others. It is one of the strategies to trade binary options.

3. Basic Options Strategy

This is yet another popular strategy that every serious binary options trader should consider. It is fairly easy to understand. The strategy is based on risk minimizing the risks as much as possible. The strategy protects the trader from incurring complete losses, in case they make wrong predictions. Once you pick an underlying asset or currency pair; let’s say the GBP/USD if you notice the market is moving in a good direction you will place a call option, but you also place a put option on the other end on the same asset. The GBP/USD is the best currency to trade binary options.

This is how it works;

Say the currency options GBP/USD is currently at 1:4000 and you are anticipating that it is going to go up so put place a call option of $100 that expires in 10 minutes. You are offered a payout of 80% if you get it and a 10% cash back if you miss it. After the first five minutes, the pair is at 1:4015 which is okay but not convincing. Therefore, you put a put option of the same amount with an expiry of 5 minutes. The payout and cashback percentages remain similar.

So, what are the possible outcomes after the last 5 minutes?

Outcome One

You call option wins and the put option losses, or vice versa. You will have a total payout of $190. That is; the 80% profit from the win, and the 10% cashback loss on the other end. You end up losing $10 since you had staked $200.

Outcome two

You could win on both the call and the put options and get $360. Two wins of $180 each. It is nearly impossible to lose on both ends due to the dynamics of the market. Losing on both ends is only considered hypothetically.

In the scenario depicted above you the amount of loss risked if far less than the possible total possible win. It means if you were to put up three consecutive such trade pairs, then lose two and win one, you would still end up with a profit.

There are many more strategies that are employed. Successful traders use these combine the basic strategies to come up with their best strategy to trade binary options. You trade when you feel you have a leverage in knowing what will happen next to the asset you are trading with. There is no best time to trade binary options. Having a strategy is the way to go if you hope to make anything in binary options trading. It is the safest way to trade binary options.

Three common mistakes options traders make

Working on building your options trading skills? You may want to consider three common mistakes options traders make—pitfalls that experienced traders try to avoid.

1. Price

The first mistake is having unrealistic price expectations, which can lead to buying options that aren’t likely to be profitable.

Imagine a stock whose price has been trending up. Traders who overestimate how much the price of that stock will rise may be tempted to buy call options that are well out-of-the-money. After all, these options appear to be inexpensive. But the price of the stock must move past the strike price plus the premium paid, fees, and commissions in order for the trade to be profitable. That could be a tall order.

2. Time

A second common mistake involves time—traders may buy far too little of it. In other words, they buy options with expiration dates that are too short.

This can be a problem because the value of an option declines as its expiration date approaches, due to what’s known as theta, or time decay. This decline is not linear, it’s exponential. As expiration gets closer, the rate of decay speeds up dramatically.

Here’s a general rule of thumb: consider buying three times the duration you think you’ll need for your trade. This could help reduce the effect of time decay on your position.

3. Quantity

One of the advantages of options is that they use leverage, letting traders gain exposure to a stock’s price with less money than it would take to buy the stock outright. But leverage is a double-edged sword. It’s possible to make a lot of money using it, but it’s possible to lose a lot, too.

That’s why it’s so important to properly manage risk, and why it’s a good idea to right-size your options positions. Owning too many options can tie up your capital and also exposes your portfolio to a larger loss if things don’t go as you hoped.

Price. Time. Quantity. Understanding these important components of options trading can help you avoid common pitfalls. And that, in turn, can make you a better-informed investor.

Why trade options?

Understanding options Greeks

How to buy call options

Looking to expand your financial knowledge?

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Securities products and services offered by E*TRADE Securities LLC. Member FINRA/SIPC. Investment advisory services offered by E*TRADE Capital Management, LLC, a Registered Investment Adviser. Commodity futures and options on futures products and services offered by E*TRADE Futures LLC, Member NFA. Bank products and services offered by E*TRADE Bank and E*TRADE Savings Bank, both federal savings banks and Members FDIC. Stock plan administration solutions and services offered by E*TRADE Financial Corporate Services, Inc. All separate but affiliated subsidiaries of E*TRADE Financial Corporation.

Securities, investment advisory, commodity futures, options on futures and other non-deposit investment products and services are not insured by the FDIC, are not deposits or obligations of, or guaranteed by, E*TRADE Bank or E*TRADE Savings Bank, and are subject to investment risk, including possible loss of the principal amount invested.

System response and account access times may vary due to a variety of factors, including trading volumes, market conditions, system performance, and other factors.

В© currentYear E*TRADE Financial Corporation. All rights reserved.В E*TRADE Copyright Policy

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