Just like trading any other kind of financial instrument - such as stocks or bonds - you will need a broker if you want to trade options. Unless you plan on starting your own brokerage, you will have to select at least one of those out there. Fortunately, there are many. However, some are by far better than others.
Personal Brokers
Despite the rise in Internet trading and online brokers, personal brokers and financial advisers still do exist. Just about all the big financial houses are in the brokerage business. To name a few: Merrill Lynch, Morgan Stanley, Charles Schwab and Fidelity, among many others. The commissions for such brokers tend to be high. Competition from online brokers has made them somewhat lower than what they were from about a decade ago. It is up to you whether or not you want to pay a financial adviser extra money for oversight of your finances and a little extra guidance when making investment decisions. Many traders will tell you that it is best to trade on your own. There is really no such thing as investment "experts," just investment professionals. This means that they simply make a living working with people and their investments. This does not mean that they know everything about financial markets or even if they make good investment decisions. If you study investments enough and follow the news frequently, anybody could easily acquire enough knowledge to figure out the dynamics of the markets. You really don't need a broker - more less pay one - to be comfortable making investment decisions. But again, the decision is yours.
One other thing to know about personal brokers is that many of them do not know how to trade options at all. That's right, some brokers don't know how to trade options! This is because many brokers simply operate on commission and make money on the volume of trades they make. So even if options are a good piece of advice to pass on to their clients, it is not always what is in the best interest of the client that is discussed. Also, if clients don't demand to learn about options, they why would brokers need to learn? If they make enough money being stock brokers, they why complicate things by teaching options? For a broker, it may not be strategically wise to discuss options. If you recall other sections of this site, trading options often requires less money than trading stocks. Now what kind of broker would prefer to be handling less of your money!! If they handle less, chances are they'd have to charge less, and the less they could pocket from you.
Online Brokers
The evolution of the Internet has revolutionized the nature of trading. No longer are personal brokers needed and you no longer have to pick up a telephone in order to make a trade. You can simply log on to your computer to track all of your investments and make buy and sell decisions on the spot. It is also an excellent source for the latest financial news. With the advent of the Internet came the advent of daytrading - the practice in which you are constantly buying and selling online. This is not to suggest that you have to be a daytrader to effectively trade options. You can be any kind of trader you want so long as you have a computer. It is all in your hands. There is no financial adviser or anybody else standing between you and the decisions you make.
If you are familiar with stock trading, then you should also be familiar with some of the online brokers out there. TDAmeritrade, E*Trade and Scottrade, just to name a few. Some of the traditional financial houses such as Charles Schwab and Fidelity also have online trading platforms. Commissions tend to be flat - somewhere between $10 and $20 on average for a typical trade.
You can also trade options with many of these platforms. Some could have flat commissions. Others may have a base rate and charge you a nominal fee for each lot of contracts you buy. Many options traders, however, prefer to trade on platforms specifically designed for options. The gold standard for options trading platforms has been optionsXpress.
optionsXpress
optionsXpress is an online brokerage based out of Chicago that specializes in options and other futures. Unlike other online brokers, optionsXpress is geared towards options traders - as is implied by its name - by providing real time quotes on options chains across all expiration dates. It also provides a great deal of real and theoretical data on options and even on the underlying stocks. The platform's technology provides tools that allow investors of all types and styles to identify, analyze and execute a wide range of investment strategies. It has received high grades from several renowned financial publications such as Forbes, Barron's and Kiplinger's. It also allows you to build a portfolio to continually track several stocks and options at any time.
You can open an account with optionsXpress with no minimum deposit.
Paper Trading
One of the most important features of optionsXpress is the ability it gives the investor to paper trade, which is trading fake money, if you will, as a sort of practice session before trading the real thing. Although it's like Monopoly money, it is imperative to take this tool seriously if you want to become an effective options trader. With paper trading you can test several investment strategies to determine if they will actual work effectively (or even work at all) before diving into real trading. Although it's not real money, you should really treat it as if it was in order to best mimic a real trading environment. This means meticulously tracking every investment decision you make (which the optionsXpress tools help you with) and tracking every single profit as well as every single loss. The more honest you are with yourself when paper trading, the better options trader you will become in the end. It makes no sense to cheat yourself when paper trading since it's not real money. You can only benefit by acknowledging any mistakes you make and learning from them in the end.
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