May 19, 2024

Reducing the risk factors in the options trading business

3 min read

Everyone thinks option trading is the easiest way to make money. You might have seen the advertisement that people are making thousands of dollars just by trading the options market with the help of a smartphone. But things are not as easy as it seems. The low-end brokers create such advertisements to attract new traders. In the options trading business, you need to be very good at technical analysis. You have to work hard to improve your trade execution. Unless you do that, you will be losing money most of the time.

Since the risk factor in the options market is very high, novice traders often ask for a solution. Though there are no fixed rules if you follow the mentioned tips in this article, you can reduce your risk exposure significantly.

Trade with 1% risk

Before you take any trade, you need to realize the fact, no one can say that he will win money from a certain trade. Trading the options market is more like dealing with the probability factor. If you expect to make a consistent profit, you must accept the fact that you might lose money even after doing the in-depth market analysis. That’s why it is better to risk only 1% of your account balance. Some of the retail traders might say, risking 2-3% is fine and you can survive in the trading industry. Though it’s true, the stress will be high.

You can trade well under heavy stress. You will make silly mistakes and thus the overall trading process will become much more complex. To protect your trading capital, follow the 1% risk factor till you get confident with your actions. Always remember, you don’t have to risk high to earn more money.

Use a high-end platform

The trading platform plays an important role in your success rate. If you chose to trade with the low-end platform, you are going to lose money most of the time. That’s why elite traders prefer to trade with high-end brokers like Saxo markets as they offer a classic trading environment. By using their advanced trading platform, you should be able to analyze the price movement of the instrument with a high level of precision. But don’t analyze without having strong analytical skills. You need to follow a proper trading strategy and then you can expect to make some quick profit.

While doing the data analysis in the trading platform, try to focus on multiple time frame analysis. By studying the different time frame data, you can easily improve your overall trading process and thus we can expect that you will earn more. But if you trade with the low-end broker, you will get a low platform. Thus you will face heavy slippage and become frustrated with the options trading industry.

Avoid trading the news

To reduce the risk factor at trading, you must learn to avoid trading the news. If you take the trades during the major news, you will experience heavy slippage. The cost of trading will be much higher. To be on the safe side, learn about the economic news event. Stay tuned with the latest economic news and avoid opening new trades right before the major announcement. Those who are thinking that we are referring to fundamental analysis are right. You have to learn the process of fundamental analysis to ensure the safety of your fund.

Taking the trades based on the technical data is fine but to increase your safety, you must learn to evaluate the news data. Unless you teach yourself to analyze news data, you will be always under heavy pressure. Learning about news analysis is not all tough provided that you follow some strategic steps. You can get a clear idea about the news factor by reading economic articles. Take your time and learn to evaluate the news and technical data.