Future and Options Trading is probably a favourite topic of almost every trader. Everyone wants to trade Futures and Options and make money through it as early as possible but here is a catch.
In order to get money from the Future and Options, you need to trade responsibly without involving your emotions. Trading Future and Options require different expertise and through the right approach, you can become a successful F&O Trader.
Here are some points that you should know before getting into Future and Options Trading.
When it comes to FnO trading, every new trader looks at the returns he will be getting not the risk exposure and that is the wrong approach. One important thing you should understand here is Future and Options are dying assets, you should be very careful whenever you are trading them.
If you are trading FnO without any experience and knowledge, then it will be very difficult to make a profit out of it. On the other hand, it is possible that you may blow your account due to a lack of experience and knowledge.
One more important thing to understand here is that FnO is a zero-sum game and probably a negative-sum game because of brokerage, taxes, and whatnot. That means, the loss of one trader is the profit of another trader and from your every trade, broker and government are making money.
As a beginner, you should have adequate knowledge about FnO trading. Without proper knowledge and knowing risk management principles you can’t start FnO trading.
Also, don’t try to enter directly in FnO trading as it may be risky. First, you should practice equity trading for a couple of months or so, work on your mistakes, and then you can come to FnO trading to gain some experience. Also, trade with only one lot initially and work on your mistakes so that you become a better trader. Initially, you will make losses, and that is perfectly fine. Everyone makes losses but make sure that, the losses that you cut your losses short.
It requires more skills and expertise than option selling, but still many people do it in a hope of making quick money and most of the time they fail to do so. So, here are some of the things you should avoid while buying options –
Trading Out of the money options is the best way to blow up your trading capital. As an option buyer theta decay is your enemy and you want minimum theta decay to happen and for that, you have to trade in-the-money options.
So, whenever you are trading options make sure that you trade in the money or at the money options, not out-of-the-money.
Choosing the correct position sizing in options is the most important thing to do. Generally, most of the new traders deploy their entire capital in a single trade and end up doing big losses.
In order to trade with correct position sizing in options trading, you should use only 10 to 20% of your entire capital in a single trade and your risk must be pre-defined. You should not lose more than 2 to 3% of your entire account in one single trade. This is how you can trade with correct position sizing and grow your capital by doing options trading.
As an option buyer, your chance of winning is already less. So, you should have full control of yourself. Option buying is only profitable when there is a move on either side of the market and that too with momentum. So, it is important to understand that you should not trade on every trading day, trade only when there are super-setups and there are chances of wild movements in the market.
So, these are some of the important points that you must avoid before trading options. Also, through my Booming Bulls Elite Traders Live Mentorship Program, I provide my students with the option buying super setups and using those well-backtested setups & properly following the discipline you can easily make money from the markets.
So, if you want to do options buying then make sure that you follow all the trading rules and follow all the risk management principles. Also, if you like this article, don’t forget to share us across all your social media handles.
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