Essential Option Strategies. J. J. Kinahan

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СКАЧАТЬ style="font-size:15px;">      Brokerage firms vary in what they charge their customers. The costs associated with traditional brokerage activities like executing buy and sell orders have been somewhat commoditized, and costs are significantly lower today than they were twenty years ago. The growth of discount and online brokerages is a big reason.

      But costs are relative to service. That is, brokerage services can range from very personal to simply taking orders online. Costs typically relate to service level and tools being offered. In short, you can expect to pay higher costs at some firms relative to others, and in an ideal world, the higher costs reflect the value being added.

      At the end of the day, the investor's trading plan is a determining factor in broker selection. Are you trading once per month or five times per day? Some firms offer lower rates to active traders, and some charge more for broker-assisted trades.

      Also, what types of investments are you buying and selling? Some firms offer certain products that others do not. In fact, futures are regulated under a different umbrella and require different account approvals compared to equities and equity options accounts.

Pattern Day Trader?

      Certain rules apply to investors who trade frequently. A pattern day trader is defined as someone who buys and sells a security in the same trading day (intraday) and does it four or more times during a rolling five-business-day period. In order to pattern day trade, the investor must maintain a minimum of $25,000 in a margin account.

      Lastly, what kind of technology does the firm offer? Not long ago, charting software, quotes, and live news were expensive. Some firms still charge for these services, and some don't. Other firms also offer premium subscriptions to newsletters, research, and other analytics. Lastly, the costs of trading vary by firm as well. Some of the fees active traders are likely to encounter include:

      • Stock trading costs. Brokerage firms typically charge a commission to execute stock trades. Some charge a flat commission per trade, some a commission per share, and some a combination of flat plus per share. The rates vary quite a bit across the industry, and many firms will charge more for broker-assisted trades or phone trades compared to online orders.

      • Options trading costs. The commission and/or fees on options trades vary from one firm to the next. Some firms charge a flat fee or commission plus a per-contract fee. Others might charge only a flat commission or only a per-contract charge. Some offer a combination of both and let the customer decide.

      • Futures trading costs. As you progress in your trading, you may want to consider using futures to help hedge your portfolio. Similar to stocks and options, these costs may vary.

      Virtual Trading Platforms

      Over the years, brokerage firms have developed platforms to help individual investors better understand financial markets and how to buy or sell investment securities. The idea is not new, but the technology is. Virtual platforms offer an advanced way to paper trade, which simply means to write down and track your ideas on paper rather than implementing them with real money in the live market. Paper trading makes a lot of sense when attempting to learn new strategies and ideas.

      In essence, a virtual trading platform lets you test-drive ideas without risking a dime. The goal is to help you develop an understanding of various financial instruments and the process of investing, which will help you build confidence as a trader.

      Keep in mind that successful virtual trading during one period does not guarantee successful investing of actual funds during a later period, as market conditions are always changing. Backtesting is great for learning but has its limits. As you have probably heard many times, past performance is not an indicator of future results.

      Many of the examples throughout this book are pulled from TD Ameritrade's paperMoney® virtual trading platform, and therefore, the bells and whistles will be duly highlighted in later chapters.

      Summary

      The first step in the process is to establish longer-term goals and objectives. Develop a trading plan that considers how much time you have available to trade, your risk tolerance, and the types of investments that might best help you to achieve your longer-term goals. Find a broker who offers the research and tools that meet your objectives. Identify potential trading ideas and test them on paper. Once new positions are opened, monitor, adjust, and exit them accordingly.

      There has never been a better time to take a proactive approach to investing. Technology has resulted in better efficiency in financial markets and has substantially reduced trading costs. Research, data, and charts are readily available at little or no cost. Confidence in your plan, strategy selection, and risk management are important elements to long-term success. A virtual trading platform can help by offering a realistic tool to practice trading before going live.

      References

      CBOE Extended Trading Hours for VIX and SPX www.cboe.com/micro/eth/pdf/ethfactsheet.pdf

      CME Futures Trading Hours www.cmegroup.com/trading-hours.html#equityIndex

      finance.yahoo.com/

      finance.yahoo.com/lookup

      www.google.com/finance

      NASDAQ Trading Schedule www.nasdaq.com/about/trading-schedule.aspx

      www.thinkorswim.com/t/pm-registration.html

Chapter 2

      First Days of Trading

      I am interested in the stock market because it really is a fascinating and exciting world to me. Each day, millions of investors make decisions to buy or sell shares of companies based on the latest news and information. Whether it's economic data, earnings, a merger story, geopolitical headlines, or some other event, it's often reflected in the stock market before it even makes the rounds in the news outlets. It's truly an amazing and efficient process.

      While stock prices can react rapidly to incoming information, trends often develop over time as well. In bull markets, for instance, stocks are moving broadly higher, and investor sentiment is typically upbeat. In bear markets, shares trend lower, and the overall mood can sour. In addition, there are periods of quiet and uneventful trading, while at other times prices swing wildly in volatile fashion.

      But when we say stock market, what exactly do we mean, and how do we gauge it from one day to the next? Is it the New York Stock Exchange? Are we referring to the Dow Jones Industrial Average or the NASDAQ? How do we measure the stock market, track its performance from one day to the next, and trade it? Those questions are answered in this chapter. Let's first begin with a brief history of stock market averages and then focus our attention on the key barometer the pros use: the S&P 500 Index.

      Brief History of Stock Market Averages

      In 1896, Charles Dow computed the average share price of twelve leading companies of the day and started printing the number daily in The Wall Street Journal, a publication founded by Dow, Charles Bergstresser, and statistician Edward Jones. Outside of СКАЧАТЬ