Types of Options Trader & Trading Styles
It's fair to say that, although the basics options trading are not incredibly difficult to get to grips with, there is a lot of information that needs to be assimilated before you are likely to feel comfortable with actually getting started. The fundamentals are relatively straightforward; you need to understand exactly what is involved, what the benefits are, what the risks are and how options really work.
We cover all of these particular aspects, and more, in our Introduction to Options Trading, but there are also several other things that you really need to know too if you want the best chance of making money. One such example is the different trading styles that can be used along with the different types of options trader.
Generally speaking, traders can be divided into two categories. First, you have the professionals, those that typically work for large financial institutions, trading directly on behalf of those institutions or on behalf of clients. These professional can also fill the role of market makers.
Secondly, you have private individuals that trade strictly on their own behalf using their own capital and generally they trade from home. Some individuals trade full time, relying on their profits as their primary source of income, while others trade on a part time basis while also having a main job.
On this page we look into the different trading styles in a bit more details, covering the following:
- Day Trading
- Swing Trading
- Position Trading
- Market Makers
This is a full time style that can be used to trade options, or other financial instruments such as stocks. It's a style often favored by professionals, but has also become more widely used by private individuals in recent years too. This is an intense and time consuming style that requires constant monitoring of the markets during the day. It was was named appropriately because it involves making trades that last no longer than a day – i.e. you would typically close all positions by the end of the day to realize any profits and then effectively start again the next day.
For more on this particular style, please read the following page – Day Trading.
This is another style that can be used for trading a range of financial instruments in addition to options. It's one of the most widely recognized styles and can be used by any type of investor or trader. It's particularly suitable for part time traders who are unable to dedicate several hours a day to their activities, and also for beginners who are not prepared for the intensity of day trading. This style is known as swing trading as the idea is basically to identify price swings and buy and sell appropriately to profit from them.
You can read more about this style on the following page – Swing Trading.
This is the style that is mostly used for trading options and futures. It's a relatively low risk style, but it does require a very comprehensive understanding of the mechanics of options and options trading. It's not a style that should be considered by beginners, and it is primarily used by professionals that have the necessary experience and knowledge to be successful.
For further information on this specific style, please visit the following page – Position Trading.
Market makers are professionals that are vital to the options exchanges. They ensure that there is always enough depth and liquidity within the market for the traders to be able to execute their desired transactions. Market makers buy and sell in very high volumes and help traders facilitate transactions if there is no corresponding buyer or seller in the market. This helps to guarantee the market moves efficiently. Market makers are generally employees of financial institutions.
You can find out more about market makers and the role the play on the following page – Market Makers.