Options traders are very cautious about the timing of the trade. They know that a few seconds delay in the trade execution can result in a big loss. The closing time of the trade also plays a critical role in your success. To become a top-class option trader, you must learn to trade with discipline. Sadly, rookies in the United Kingdom don’t follow the safety protocol. They break all the rules and try to execute random trades with the hope to make big profits. But such an approach never works. To survive in the trading industry, you need to follow some safety rules.
In this article, we will discuss the top 3 safety rules of option trading. If you can stick to these rules, you can expect to make a consistent profit regardless of the market condition. Let’s explore the details.
Risking 1 % of the investment
Being an options trader, you should only risk 1% of the investment. Taking more than 1% risk is a very risky approach and you might lose money in most of the trades. To secure the safety of your investment, you should always focus on the critical dynamics of the market. Once you learn to take trades with managed risk, you will be able to deal with the losing trades. But if you risk more than 1%, you won’t feel comfortable with the losing trades. You will become frustrated and try to recover the losses. Usually, such an approach will result in a big loss. You can’t trade with aggression and try to recover the loss within a single day.
You have to use a conservative trading method because it is the only effective way to protect your trading capital from a big blow to the market. So, the only way you can avoid such complicated problems is by reducing the risk. If possible, trade with a low leverage account.
Choosing the best broker
Elite option traders never trade with the low-end broker. You must trade with the high-end broker to ensure the safety of the capital. Trying to trade the market with a low-end broker to cut down the costs of trading is a very big mistake. Think about the long term goals and try to find a good broker like Saxo. Visit their website here and you will know why the elite traders prefer to trade with Saxo. Once you start taking the trades with Saxo, it won’t take much time to develop your skills as a currency trader. Being a new trader, you might be able to use the premium tools efficiently. But you can always rely on the demo trading account. The demo platform will give you the perfect place to test different things and you will be able to manage the risk exposure just like the pro traders.
Avoid trading the news
Option traders should never trade the news unless they are dealing with a high expiry period. News trading is very risky because it creates massive spikes in the market. People become confused when they take trades during news releases. After losing money due to the massive spike they blame the market. But have a look at the professional traders. Do you think they are losing money in news trading? The answer is no. When they trade the news, they switch to the daily or the weekly time frame. To mitigate the complex price swing, you must rely on the higher time frame data. Choosing a higher time frame can greatly improve your trade execution skills. So, never try to trade the market during the news in the lower time frame. Follow the safety protocols and you will be able to survive in the options trading business.