Mastering options trading can lead you to financial independence as it’s a versatile and powerful skill. Part of becoming a seasoned pro in this realm is learning the strategies and techniques to turn a profit in different market conditions. Our guide will cover the best trades to remember to keep your portfolios well diversified and to develop your trading skills and techniques continually.
Whether you’re new to trading or you have considerable experience, you can benefit from reading this guide as we discuss trading basics like covered calls and cash-secured puts, as well as advanced techniques like straddles, strangles, or iron condors. Outside of options, we’ll explore a few other ways to trade online, including futures, forex, stocks, and cryptocurrencies. Learn how options and other forms of trading can lead you to a life of financial independence through steady profits as you gain experience.
Why Learning Options Trading Is Essential
What are the advantages of options trading? What makes them one of the more preferable forms of online trading for investors? We’ll discuss the role of options in a balanced trading strategy, and we’ll even address some of the common misconceptions that newbies have about options trading when they come fresh to the idea. More or less, we’ll address why options trading is an essential part of developing a robust trading strategy.
Overview of Options Trading
Options trading is the practice of buying or selling options contracts that give the holder the right to buy or sell an underlying asset at a certain strike price by a certain expiration date. The holder isn’t obligated to buy or sell and the underlying asset can be bought or sold much in the same way that a stock could be bought or sold.
The key difference is that options trading allows the holder to benefit from market movements without having to own the underlying asset outright. With options, the most risk that the investor is carrying is typically the premium paid on the options contract. Options are a great way to bet on future price direction for security with limited risk.
Key Benefits
- Flexibility: One of the best parts of options trading is being able to trade in a variety of markets, adjust the legs of the positions you’re trading, and take advantage of changing price trends. The flexibility of options trading is something that’s super appealing to newer investors who might want to get their feet wet but may be more limited in the resources they have on hand to invest.
- Leverage: Options provide leverage for traders and investors. Options buyers can pay a small premium for market exposure in relation to the value of the options contract. Leverage benefits the trader in that they can see large percentage gains from relatively small percentage movements in the underlying asset.
- Risk Management: Options trading is an endeavor that comes with so many risk management practices that it helps keep investors relatively insulated from the bigger losses you might see with other forms of online trading.
The Role of Options in a Balanced Trading Strategy
How do options enhance portfolio performance?
Having a balanced trading strategy can help you reduce risk or amplify returns. One of the best trading methods for reducing risk would be using a combination of long and short positions, the best case being selling covered calls or using protective puts.
In terms of amplifying potential returns, you can see this clearly with call options where you control a larger number of shares of the underlying asset with a small investment upfront. Unlike stock trading, options let the investor magnify returns by investing in a fraction of the amount, which serves as a premium for call options.
Common Misconceptions about Options Trading
Options trading has some myths surrounding it that are commonly circulated by people who have a general idea of what goes on but haven’t taken the time to fully realize how it all works. There are a few elements of truth to these myths, but they can be largely debunked if you do even just a bit of basic research. Keep reading if you want to see the record set straight on some of option trading’s most common myths.
Myth #1: Options Need a Bull Market
This is one of the biggest myths about trading options online—there are other ways to make money even when the market isn’t looking good. This is all thanks to the unlimited upside risk that comes from selling stocks or indices short. Put options are great to use when there’s an expected decline in the price of an underlying stock or ETF. Using put options when the market outlook isn’t great is a way for investors to profit and have their investments grow even when the market is falling.
Myth #2: Trading Is Too Confusing
While there is a bit of truth to this myth, trading options and finding ways to make money in different kinds of markets isn’t something you need a PhD to do. You can access plenty of online learning resources that can help you learn about trading options, not to mention the resources and learning tools that are available on options trading apps. Plenty of traders and investors come from a self-taught background, which is a testament to how just about anyone can pick up options trading over time, given enough to learn the basic concepts and to build from there.
Myth #3: Options Trading Is Too Risky
While options trading does indeed carry an element of risk, there are plenty of ways to trade that involve a lot less risk than other methods. Some examples of low-risk options trading strategies include selling a call spread, using a collar strategy, or selling a put spread. The nice thing about trading options is that you can choose strategies that run less risk, and then you can build from there once you’ve developed some comfort and familiarity with how it all works.
Myth #4: You Have to Own Stocks to Trade Options
By definition, options are a contract that gives its holder the right and not the obligation to buy call options or sell put options. This includes the right (not the obligation) to sell underlying securities at a certain strike price and by a certain expiration date. With options trading, you’re not limited to the stocks already in your portfolio.
Myth#5: You Have to Have Plenty of Money to Trade Options
For the most part, you can survive in online options trading with a balance as low as $1,000. You can leverage quite a bit when buying calls and puts—you get the same upside potential when buying options for a much lower price than the standard 100 shares of a certain stock. Plus, where you’re only allocating 1-2% of your entire balance to each trade, it’s not as if you need several thousands of dollars to succeed in options trading.
Best Options Trades for Beginners
Certain types of options trades are better for beginners than they are for others. It’s key to focus on the rudimentary trades before delving into more advanced concepts and trade executions that you see with more experienced traders or investors. We’ll discuss some of the best places to start if you’re new to options trading and need to execute some basic trades to get some experience under your belt.
Covered Calls
A covered call is an options trading strategy that involves selling a call option on a stock you already own. The buyer of that call option has the right to buy your stock at the strike price you set and within a set timeframe (by the expiration date you set). The seller gets a premium for selling the call option and then they can wait and see if the call option is exercised by the buyer or if it expires.
Covered calls are best to use in slightly bullish or neutral markets. That’s not to say they don’t perform well when there’s volatility—covered calls do alright when there’s some moderate volatility. However, they’re best to use in stable market conditions.
How Covered Calls Can Generate Steady Income
Covered calls are great for generating steady income and it’s done when traders sell call options on stocks they already own. By selling these stocks, traders can earn a premium just for selling the stock. If the stock price goes above the strike price, the option holder can exercise the option and buy the stock at the strike price.
It’s a good option for generating income without selling the stock, making it a popular investment choice for retirees. A few other benefits of using covered calls include mitigating downside equity risk and generating income in a tax-efficient way.
Cash-Secured Puts
Cash-secured puts describe an options trading technique where investors sell a put option on a stock while also setting aside the cash to buy the underlying stock if the option is exercised. The reason the investors would want to set aside the money to purchase the underlying stock is because they can buy the stock at a lower price than the current market value if the stock prices fell below the strike prices of the put option that was sold.
The cash-secured put is a clear example of the importance of learning disciplined trading because it gets traders into the practice of having the necessary cash on hand to make the strategy work. Capital management is a prime principle that’s taught with this trading technique and can help traders be successful with other trading strategies in future times.
Vertical Spreads (Bull Call/Bear Put)
Vertical spreads are options trading strategies where the trader buys and sells two options of the same kind (call or put) on the same underlying asset. The expiration date is the same, but the strike prices are different. This kind of strategy allows traders to have a defined risk position where one position is purchased at a lower strike price, and the other is sold at a higher strike price. The max profit or loss is predetermined based on the difference between the two strike prices.
Bull calls and bear puts are two examples of vertical spreads:
- Bull Call: The investor buys a call option at a lower strike price and sells a call option at a higher strike price on the same underlying asset. The investor is hoping that the asset’s price will rise a bit to profit from the price difference between the two option contracts. This one carries the limited risk of the net debit paid to initiate the trade and the limited profit potential which is the difference between the strike prices of the long and short options.
- Bear Put: The investor buys a put option with a higher strike price and sells a put option with a lower strike price. The goal is to profit if the price of the asset falls below the lower strike price. The maximum loss with this vertical spread is the initial cost to start the trade and the profit potential is technically unlimited.
Advanced Options Trades to Master
Let’s take a look at the more advanced trading concepts that you see used by traders who have more experience with the options market. You’ll only want to use these techniques after you’ve mastered the basics and have those down pat. These strategies involve more moving parts and require you to keep a closer eye on what’s happening.
Iron Condors and Butterflies
Multi-leg strategies such as iron condors and iron butterflies allow traders to combine multiple legs with different strike prices to create positions where they can profit regardless of the underlying asset price going up or down. Buying and selling orders in neutral markets aim to capitalize on volatility rather than correctly guessing the direction the market is moving.
Iron Condors
Traders sell an out-of-the-money call-and-put option while also buying an even further OTM call-and-put option with a higher strike price. It’s technically a combination of a bear call spread and a bull put spread—the iron condor is made of four options contracts with the same expiration date. This strategy is best used in markets where conditions are stable or moving sideways.
Check Out an Example of an Iron Condor in Action:
The first step is to build the call credit spread above the current stock price. Sell a call option with a strike price of $110 and then buy a call option with a strike price of $120. Selling the call option results in a $2 premium. Paying for the call option costs $1. This results in a net credit of $1 of the call credit spread.
The second step would be to construct the put credit spread. The calls and puts for the iron condor will all expire on the same day. You sell a put option with a strike price of $70 (you receive a $2 premium) and buy a put option with a strike price of $60 (you pay $1). You get a net credit of $1, and it’s important to point out that the puts’ strike prices are below the current share price.
The profit for the iron condor lies in collecting premiums from the sales of the calls and puts. Since you are gaining an overall net credit of $2 between the combined sales, you can multiply this by the 100 shares that options control for a total net credit of $200. This only happens if the option expires as worthless, with the stock price being between $70 and $110.
Iron Butterflies
This one is a bit different—traders profit from price fluctuations within a set range, so traders are buying a call and put option at different, further out strike prices. The butterfly consists of buying and selling two call options, and two put options with different strike prices and the same expiration dates. The trader then sells at-the-money call and put options and then buys out-of-the-money call and put options.
Now let’s look at the iron butterfly and how they ensure profit for the trader or investor.
Let’s say there’s a stock currently trading at $100. The trader would want to sell a call and a put option at the $100 strike price while also buying a call option at a strike price of $110 and a put option at a strike price of $90. The idea with the Iron Butterfly is to profit if the stock price stays right around $100. It provides limited potential gains and losses, so long as the price stays between the $90 to $110 range.
Straddles and Strangles
These two strategies are best used for volatile markets where the investor expects significant price movements with an underlying asset but they are unsure of the direction. The price movement could move downward and the trader can still make a profit because making money using straddles and strangles involves correctly predicting significant price movements in either direction. The worst thing to happen using these trading strategies is for the market to be relatively stable or flat.
Straddles
The traders buy or sell a call-and-pull option with the same strike price and expiration date, which offers them the opportunity to profit regardless of the market’s direction. The strategy profits when the underlying asset price has a significant movement in either direction.
A good example of a straddle trade would be a stock that is trading at $50 per share and the trader buys a $50 call option as well as a $50 put option. The hope here is to profit if the stock prices move significantly above or below $50 before the expiration date hits.
Strangles
The strangle is a combination of a call option above market price and a put option below market price. Both have the same expiration date. Like the straddle, the strangle profits when there’s a significant price movement in either direction.
If a stock is trading at $100, a trader can employ a strangle strategy by buying a call option with a strike price of $105 and also buying a put option with a strike price of $95, both of which are technically out-of-the-money. If the stock price goes above $105 significantly or below $95 significantly, it will be considered in-the-money and the trader will profit, otherwise, the option expires as worthless if it falls between $95 and $105 and the trader will lose their premium.
Advanced Hedging Techniques
There are cases where investors can hedge their entire portfolio using options. It is typically done through buying put options on a broad market index—these act as a form of insurance. Investors have the advantage of maintaining their holdings while also mitigating potential losses if the market falls.
There are different ways to protect gains during a market downturn using multiple instruments including options, stocks, futures contracts, or forward contracts. For our example, we’ll focus specifically on doing so using options and the classic covered call technique. To start a covered call, investors must sell a call option on a stock they own. The buyers can buy the stock at the set strike price and expiration date, resulting in the seller getting a premium for selling the call option. Covered calls are best to use in slightly bullish or neutral markets.
Covered Call Example
– A trader purchases a stock that is currently trading at $50 per share. They buy the standard contract of 100 shares, costing them $5,000.
– The trader then sells a six-month call option with a strike price of $55.
– The premium gained from this sale is $4 per share.
– In the event the stock price rises to $55 or goes beyond, the trader stands to make a profit of $9 per share.
– If the stock price dips to $40 or below, the trader’s loss is limited to $6 per share.
Exploring Other Types of Trades Beyond Options
In addition to options trading, there are other ways for investors to expand their wealth through other forms of trading or investments, namely traditional stock trading, foreign exchange (forex), or futures trading. And, of course, cryptos are all the rage right now and provide another avenue for growth, even though they are much more volatile than the others. Keep reading to explore other types of traders and how you can work them into your trading routine.
Stock Trading
In options trading, you’re given the right (not the obligation) to buy or sell a stock at a specific price before a certain date, and it lets you bet on the future price direction of stocks without having to actually own the shares. Stock trading is different in that you are buying a piece of ownership in the company. As a part owner, you stand to get dividends from the company that you’ve bought stock in. Stocks can be held indefinitely,y and the trading experience overall is much less complex than options trading.
There are a few different types of stock trading you can partake in:
- Day Trading: This high-risk strategy is where a trader buys and sells securities within a single trading day. All positions get closed out before the market closes and these traders take advantage of small price fluctuations in the market. Without proper risk management strategies, these investors can stand to lose a lot of money in addition to other risks like volatility or emotional decision-making.
- Swing Trading: This form is all about taking advantage of short-term price fluctuations. Swing traders use technical analysis to decide when to buy or sell assets. The general rule of thumb is to buy low and sell high while profiting from the short-term price movements. These positions can be held for days or weeks, making it a longer form of trading than day trading.
- Long-Term Investing: This type of trading involves holding investments for more than 12 months and usually more than 3 years. The long-term approach is all about riding the ups and downs in the hope that a long-term profit is gained. In addition to stocks, traders can also do long-term investing with ETFs, mutual funds, and bonds.
Stock trading complements options trading because it provides the underlying asset that options are based on. This will allow traders to enhance their position in a stock using options strategies as a vehicle. It’s done by leveraging potential gains or hedging against potential losses using a much smaller capital investment instead of owning the stocks outright.
Forex Trading
Forex is short for foreign exchange trading, which is the buying and selling of currencies. It’s the largest financial market in the world, and it’s the most liquid form of trading and investing. Forex pairs are made of a base currency and a quote currency. Traders profit when they buy currency when its value is cheap and sell it when it’s higher. Some people trade forex to pay for goods or services in other countries.
Forex trading can add diversity to your skillset because it requires a time commitment to studying market conditions and plenty of aptitudes to see your investments through to a profit in volatile market conditions.
Forex Strategies
- News Trading—Use price volatility to your advantage by tracking major news releases and central bank meetings.
- Position Trading—This is the long-term investing version of currency pairs.
- Day Trading—These are short-term trades based on when a currency pair’s prices might move (the use of technical analysis is heavy with this form).
- Carry Trading—Traders can profit from the differences in interest rates between the two currency pairs.
- Swing Trading—Traders can profit from corrective movements or rollers that occur with currency pair trends.
- Trend Trading—Use the market’s directional momentum to successfully trade currency pairs.
- Retracement Trading—Use temporary price retracements that occur within a broader trend to lock in a profit.
- Scalping—These are small, frequent profits that are made from a high volume of trades made over a short period.
Futures Trading
Futures trading refers to a financial agreement to buy or sell assets at a predetermined price at a future date. This type of trading is rooted in speculation on future price movements. Some traders use futures contracts to protect against price fluctuations. The underlying asset of futures contracts is based on something like a stock, cryptocurrency, or commodity.
The futures contract acts as the underlying asset for an option contract. Futures pair with options because when traders buy options they are buying the right to buy or sell specific futures contracts. Options give traders the flexibility to take positions on futures contracts without being obligated. On the other hand, future contracts lock investors into a price at a future date.
Leveraging Futures in Commodity
A good example of leveraging the future in commodities would be a corn farmer buying corn futures contracts. Doing this could let them lock in a price for their upcoming harvest. They reap the advantage of guaranteed prices for their corn even if the market price drops lower than that point before the harvest is underway.
Leveraging Futures in an Index
In this example, a trade might buy NASDAQ index futures to speculate on the overall stock market direction with a small capital commitment. The advantage to leveraging futures in an index would be profit significantly if the market rises considerably.
Cryptocurrency Trading
Crypto trading is the buying and selling of cryptocurrencies on an exchange. It’s the act of speculating on crypto price movements which can be fairly volatile due to cryptos carrying a substantial amount of risk. Trading digital assets can be lucrative for some but there are some significant risks involved that are worth noting for those unfamiliar with this form of trading.
Risks
- Cryptos’ value can change dramatically and constantly. It’s a highly volatile investment.
- There are liquidity concerns, meaning that crypto investments being entered or exited quickly without moving the market price is largely up for debate.
- Due to the crypto market being unregulated, there’s a greater likelihood of investors falling victim to scams and fraud.
Rewards
- Crypto traders involved lower transactional fees (the decentralized design of crypto trading reduces the need for a middleman).
- There’s a diverse range of digital assets that you can trade, including Bitcoin, Litecoin, Ethereum, and many others.
- Crypto markets have 24/7 market accessibility.
If you’re looking to work crypto trades into your portfolio, there are several ways to do so successfully and make your portfolio even more diversified than it already might be:
- Divide your portfolio into specific sections: Bitcoin, Ethereum, and all other cryptos.
- Invest in smaller cryptos with greater potential growth.
- Buy the market leaders.
- Concentrate on cryptos with different use cases.
- Look into contemporary crypto stocks.
- Invest in smart contract blockchain networks.
How to Decide Which Trades Are Best for You
If you’re not sure which types of online trading would work best for you, check out some of the ways that you can narrow down your options to the best choices, the ones that work well for your risk tolerance, financial goals, and your learning process.
Assessing Your Risk Tolerance
One of the first considerations is finding out how open you are to risk capital to make a profit on your investments. Think about factors like your income level, age, comfort level with potential losses, the time horizon to meet your financial goals, and your overall experience with online investments or trading. Once you’ve evaluated these factors, you can begin determining your comfort level with risk. For instance, if your income level is relatively high and you’re younger, you can afford to take risks, more so than someone who is near retirement and cannot afford to take such risks and still have enough to live comfortably after they’re done working.
Strategies for Risk Management
- Stop Loss—Set up your positions to automatically sell off when the underlying asset’s price falls to a certain point.
- Position Sizing—Choose a conservative amount to dedicate to each trade. It shouldn’t be any more than 1% or 2% of your total capital.
- Risk-Reward Ratio—Find out what your max loss and max profit potential are for each trade to evaluate if the risk is worth the reward.
- Non-Emotional Trading—Root your strategy in risk-reward figures, technical analysis, and other hard facts. Don’t trade based on emotions like anger, frustration, fear, or overconfidence.
- Diversified Portfolio—Developing a portfolio that has investments in multiple sectors or industries is a terrific way to make sure you’re at optimum risk exposure. You don’t have a ton of capital tied up in a single industry or sector, which means that you can ride out downturns without losing too much.
Aligning Trades with Your Financial Goals
Think about your long-term and short-term goals and choose trades that align with those goals. What this means for investors or traders is to choose positions that work toward financial objectives, like reaching a specific target price, generating consistent income, or growing your capital. Determine your financial goals by considering things like time horizons, investment strategies, or risk tolerance.
Time Commitment and Learning Curve
Another factor to consider when choosing which trades is how easy they are to learn and master. A lot of this might come down to how steep the learning curve is for each and the amount of time that you can dedicate toward picking it up. It’s key to have realistic expectations for mastering different trades.
Tools and Resources for Learning New Trades
If you’re interested in learning more about trading and how to employ the best techniques for maximum effect, check out the following tools and resources. You can choose from brokerage apps that carry educational features, books, tutorials, and courses—they are a tool of avenues for finding the knowledge you seek on trading and investments online.
Brokerage Platforms with Educational Features
Check out our favorite online options trading apps that come equipped with educational features for learning the tricks of the trade. And while you’re at it, you might find a trading app that works well for you and your online trading needs.
Interactive Brokers
Fees/Commissions
- Stocks/ETFs (Tiered): 0.0005-0.0035 per share
- Stocks/ETFs (Fixed): 0.005 per share
- Options (Tiered): 0.15-0.65 per contract
- Options (Fixed): 0.65 per contract
- Futures (Tiered): 0.25-0.85 per contract
- Futures (Fixed): 0.65 per contract
- Spot Currencies: 0.08-0.20 basis points x trade value per order
- Bonds: 10 basis points x face value per order
- Mutual Funds: 3% x trade value up to $14.95 per transaction
Top Strengths
- Free Educational Resources
- Good for Individual, Professional, and Institutional Traders
- Low Transaction Costs
- Lite and Pro Versions
- Includes a Wide Range of Asset Classes
- Free Demo Account Available
- Portfolio Builder Tool
- International Trading Opportunities
Key Features
- Trading
- Research
- Account Management
- Portfolio Performance
- Wide Range of Order Types
- Impact Dashboard
- Fundamentals Explorer
- Trade in Fractions
- Strategy Builder
- Write Options Tool
- Rollover Options Tool
- Stock Yield Enhancement Program
- Model Marketplace
tastytrade
Fess/Commissions
- Stock and ETF Commission: $0.00
- Annual Margin Rates: 11.0%
- Opening a Contract: $1
- Exercise and Assignment Fee: $5 per leg
- Stock Index Options Commission: $5.00
- Inactivity Fee: N/A
- Withdrawal Fee: N/A
- Wire Transfer Fee: $25 (within the US)
- International Wire Transfers: $45
- Low Futures Fee: $0.85 per contract
- Low Spot Crypto Fees: Crypto trading costs 0% of trade value
- US Micro e-Mini Stock Index Futures: $8.5
- Options on Stock and ETFs: $1.00 per construct ($10 max per leg)
- Options on Futures: $2.50 per contract
- Options on Micro Futures: $1.50 per contract
- Stock and ETFs: $0 (unlimited shares)
- Futures: $1.25 per contract
- Micro Futures: $0.85 per contract
- Smalls Futures: $0.25 per contract
- Small Futures Options: $0.50 per contract
- Cryptocurrency: 1% of total crypto purchase
- Futures: $1.25 per contract
- Micro Futures: $0.85 per contract
- Smalls Futures: $0.25 per contract
- Cryptocurrency: 1% of total crypto sale
Top Strengths
- Suitable for active and experienced traders
- Quality analysis and research tools
- User-friendly mobile app and desktop version
- Educational resources
- Low options fees
- No inactivity fee
- Free stock trading
- User-friendly banking options
- No deposit fees
- Free ACH withdrawals (US)
- Price alerts (desktop only)
- Customizable desktop version
- Order confirmations (mobile app)
- Quick, fully digital account sign-up
- Clear fee reports
Key Features
- Curve Analysis
- tastytrade Live Feed
- Backtesting
- Quick Roll
- Follow Feed
- Limit Orders
- Order Adjustments
- Trader’s Block
- Watch List
E*TRADE
Fees/Commissions
- Minimum Balance: $0.00
- Cost Per Stock Trade: $0.00
- Cost Per Options Trade: $0.65 per contract or $0.50 per contract with 30+ trades per quarter
- Commission Free ETFs: All
- Non-Transactional-Fee Mutual Funds: 6,000+ NTF mutual funds
- Account Fees: $75 for full transfers
- $1 per bond ($10 minimum and $250 maximum)
- $25 per broker-assisted trade and commission-free Treasury trading
- $6.95 commission on over-the-counter stock trades
- $4.95 commission on OTC stock trades if you make 30 or more trades per quarter
- $1.50 per fixed futures contract
- $2.50 per cryptocurrency futures contract
- The margin rate for less than $10,000 is 11.95%
- The margin rate for $250,000-499,999 is 9.95%
Top Strengths
- Best mobile app for online investors and traders
- Low trading fees on stock and ETF trading
- Pays interest on uninvested cash
- Prebuilt and automated portfolio option
- Plenty of educational content
- Good range of tools and resources
- Strong customer service
- Options trading for Levels 1-4
- Options and futures specialists are available
- Transparent pricing
- Extensive bond trading
Key Features
- Research Material
- Excellent Trading
- Market Data
- Automated Investment Management
- Retirement (IRAs)
- Developer Platform
- Watch Lists
- Two Mobile Apps Available
Charles Schwab
Fees/Commissions
- Listed Stocks and ETFs: $0 online commission
- Options: $0 online based commission + $0.65 per contract fee
- Exercised and Assigned Options: $0 online commission
- US Over-the-Counter Equities: $6.95
- Schwab Mutual Fund OneSource: $0
- All Other Mutual Funds: up to $74.95 per purchase
- Futures: $2.25 per contract
- Futures Options: $2.25 per contract
- Forex: $0 online commission (trade costs seen in the bid/ask spread)
- New Issues (Including CDs): Selling concession is in the offering price
- Foreign Stock Transactions (US OTC Market): $50 foreign exchange fee
- Treasuries: $0
- Other Secondary Trades: $1 per bond, $10 minimum, and $250 maximum
- Preferred Listed Stocks and REITs: $0
Top Strengths
- Commission-free stocks, options, and ETFs
- Extensive research tools
- Large selection of funds
- $0 account minimum (appeal to beginners)
- $0 commission for stock and exchange-traded funds (appeal to advanced traders)
- Access to the thinkorswim trading platform
- $0.65 per options contract
- CS offers many account types, including individual, joint, education savings, SEP IRAs, solo 401(k)s, and more
- 7,700 funds available
- Around-the-clock support via phone and live chat
Key Features
- Thematic Investing
- Schwab One
- Research
- Robo-Advisors
- Joint Brokerage Accounts
Robinhood
Fees/Commissions
- Trade Commission: $0.00
- Margin Account Interest Rate: 12.00% or 8.00% with Gold Plan
- Returned Check: $25
- IRA Rollover: $25
- Outgoing Wire Transfer: $25
- Instant Bank Transfer: Up to 1.75%
- Monthly Paper Statements: $2
- Paper Trade Confirmations: $2
Top Strengths
- No account minimum
- No monthly fee
- Commission-free stocks, options, and ETFs
- Easy to learn and use for investments/trades
- High interest rate on uninvested cash
- Fractional share trading is available
- Use cryptocurrencies
- Access deposited cash instantly
- Streamlined user interface
- IRA with 1% match
- Solid cash management
- Recurring investment functionality
Key Features
- 24-Hour Market
- Joint Investment Accounts
- FDIC-Insured Money
- Commission-Free Trading
- Low Margin Rates
Books, Courses, and Tutorials
Check out some of the best learning materials for getting familiar with and knowledgeable of options trading online—we’ve included the names of some helpful books, tutorials, and courses for your convenience. The more you learn about trading, the better your overall trading approach can be!
Books
- “Options Made Easy” by Guy Cohen
- “Trading Options for Dummies” by Joe Duarte
- “The Options Playbook” by Brian Overby
- “Option Volatility and Pricing” by Sheldon Natenberg
- “Options as a Strategic Investment” by Lawrence G. McMillan
- “Dynamic Hedging” by Nassim Nicholas Taleb
Trading Courses
- Practical Guide to Trading—Interactive Brokers
- Trading Strategies in Emerging Markets—Indian School of Business
- Financial Markets—Yale University
- Machine Learning for Trading—Multiple Educators
- Forex: Trading Around the World—Interactive Brokers
- Introduction to Trading, Machine Learning, and GCP—Google Cloud
- Advanced Trading Algorithms—Indian School of Business
Trading Tutorials
Many of the best trading tutorials can be found on trading apps under their “educational resources” sections. That might be the best place to begin, but you can also find tutorials on financial news platforms or other online sites like Coursera or Investopedia. Some are free, and some are paid—you need to look into each one to find out.
Simulation and Paper Trading
We cannot stress enough the importance of practicing before using real capital, be it through trade simulators, paper trading, or demo modes. These are virtual trading environments with virtual balances to practice trading stocks or other securities without having to risk any of your own capital. Trade simulators or paper trading are helpful tools to learn market dynamics and practice trading strategies, giving new investors the time and experience needed to succeed.
Gain Financial Independence Through Learning Options Trading
Learning popular options traders like covered calls, cash-secured puts, and vertical spreads are great places to begin if you want to get into trading options successfully with minimal experience. Check out the educational resources that are available on the trading app you’re using to learn through demo accounts and helpful courses or tutorials.
Before trading, consider your income level, age, comfort level with potential losses, the time horizon to meet your financial goals, and your overall experience to find out what kind of investments or trades will serve your financial goals. As you learn more about options, you can work your way to more advanced trading techniques like iron condors, straddles, strangles, or hedging strategies.
In addition to options, you can diversify your portfolio through other types of trading or investments such as traditional stocks, cryptos, foreign exchange, and futures contracts. Having a dynamic portfolio along with strong options positions can lead you down the road of financial independence through trading skills.
