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The complete guide to options trading

Options trading can sometimes feel a little intimidating, but in reality, it's fairly simple. This article will help you understand the basics of options trading and show you how to get started with options trading right away.

What is an option?

An option is essentially a contract that allows somebody to buy or sell an asset at a specified strike price within a specified time frame.

What are the advantages of trading options?

The most obvious advantage is leverage (it's 2-3 times more likely for you to make gains on your trade compared with buying/selling shares outright).

Another advantage is that it allows you to hedge your existing portfolio.

What are the risks of trading options?

The risk with options trading is unlimited, just like shares trading there's a chance you could lose all your capital if the trade goes wrong. In addition, if you do purchase an option, you have to be prepared for the fact that if the market moves against you, your option may expire with a loss (similar to what would happen if you sold your shares in this case).

Options trading is similar to buying and selling shares; it's not something we recommend for beginners. But once you get bitten by the bug and want to try options trading make sure you understand the risks.

How to buy and sell options on etrade?

When you're ready to start buying and selling options, try it out on etrade .

They provide a free simulator so you can get the hang of what happens when you buy/sell different combinations of puts/calls.

Make sure you also read about how etrader works before starting trading.


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