There are a number of issues you need to consider when you are looking for an online options broker to provide you with effective access to forex options on the global markets. Firstly, ask what, if any, is their financial exposure to risky instruments like mortgage derivatives and credit default swaps (CDS). Does the online broker deal with other trade and investment instruments like futures, bonds and stocks, or is it focused solely on forex options?
When you ask what sort of trade volumes they handle on a daily basis, this will give you a good picture of the size of the operation. Does the broker do a half a million, a million or more contracts daily? Then a prospective trader needs to check out the margin system used by the online options broker. Do they operate in real time, including the use of automatic limits, or does the broker contact the trader at the end of the trading day? And given that options are highly leveraged, what are the minimum balances you have to maintain?
Some option contracts allow you to exit at any time up to the expiry date while other types of contract must be held to expiry or settlement. So you would need to know what type of options your broker can offer in their online trading platform. There is also the question of cost and whether the online options broker can offer a discount and so lower your trading costs. Under what circumstances would they do this? Do you have to have a premier type account or hold a higher maintenance margin to benefit from a discount?
There can be different types of options in terms of which markets the trader can gain exposure. For example, a plain vanilla options broker offers markets with generally good liquidity and the contract is broadly generic which is traded through the mainstream clearinghouses. Alternatively, there is the exotic options broker who focuses on the smaller, niche markets of minor currencies, which are traded less often and where liquidity is less certain.
When you are deciding which online options broker to select, it is worth checking out the quality and effectiveness of the educational program and support available to clients. As a trader starting out you will find things easier if the firm offers a range of seminar and videos covering the basics of options trading. Find out if the videos offered are designed to let you see the effect of decisions you take in the mock scenario on your trading capital. As well as the educational angle, does the broker give you a report service, newsletters and trade alerts?
An important area of the package will be the type and ease of use of the trading software. See if you can understand how it works and that it has a version suitable for new traders as well as professionals. You will want to see how straightforward it is to follow your trades on the platform and take decisive action if necessary. Find out if the online options broker can get a better price per contract than its competitors.
If you can see your trade risk and option price in real time this offers you a great advantage, so try to find software that achieves these capabilities and help you improve your trade performance. It may also pay to see whether the firm offers data covering volatility and other trading measures as well as macroeconomic data like interest rates. Finally, after taking all the above into account you may be in a much better position to choose an online options trader that is right for you. And remember that trading these derivative products means there is a risk of losing your capital. - 23309
When you ask what sort of trade volumes they handle on a daily basis, this will give you a good picture of the size of the operation. Does the broker do a half a million, a million or more contracts daily? Then a prospective trader needs to check out the margin system used by the online options broker. Do they operate in real time, including the use of automatic limits, or does the broker contact the trader at the end of the trading day? And given that options are highly leveraged, what are the minimum balances you have to maintain?
Some option contracts allow you to exit at any time up to the expiry date while other types of contract must be held to expiry or settlement. So you would need to know what type of options your broker can offer in their online trading platform. There is also the question of cost and whether the online options broker can offer a discount and so lower your trading costs. Under what circumstances would they do this? Do you have to have a premier type account or hold a higher maintenance margin to benefit from a discount?
There can be different types of options in terms of which markets the trader can gain exposure. For example, a plain vanilla options broker offers markets with generally good liquidity and the contract is broadly generic which is traded through the mainstream clearinghouses. Alternatively, there is the exotic options broker who focuses on the smaller, niche markets of minor currencies, which are traded less often and where liquidity is less certain.
When you are deciding which online options broker to select, it is worth checking out the quality and effectiveness of the educational program and support available to clients. As a trader starting out you will find things easier if the firm offers a range of seminar and videos covering the basics of options trading. Find out if the videos offered are designed to let you see the effect of decisions you take in the mock scenario on your trading capital. As well as the educational angle, does the broker give you a report service, newsletters and trade alerts?
An important area of the package will be the type and ease of use of the trading software. See if you can understand how it works and that it has a version suitable for new traders as well as professionals. You will want to see how straightforward it is to follow your trades on the platform and take decisive action if necessary. Find out if the online options broker can get a better price per contract than its competitors.
If you can see your trade risk and option price in real time this offers you a great advantage, so try to find software that achieves these capabilities and help you improve your trade performance. It may also pay to see whether the firm offers data covering volatility and other trading measures as well as macroeconomic data like interest rates. Finally, after taking all the above into account you may be in a much better position to choose an online options trader that is right for you. And remember that trading these derivative products means there is a risk of losing your capital. - 23309
About the Author:
The author, William Davies, edits articles for a website on trading commodities, a helpful informational resource for traders wanting to understand more about options, commodities and futures. Discover a suitable online options broker for your trading style.
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