Whether you’ve been trading for a long time, or just recently started trading stock online, you’ve probably heard of options trading and are wondering if it’s right for you. The financial world makes everything way more complicated than it needs to be, so amateurs might get intimidated when they begin. But don’t worry! Options trading is simple, straightforward, and easy. We’re here to help you get started.
If you already use eToro for your trading or cryptocurrency transactions, the good news is that it is very easy to get started with options trading. If you don’t use any online trading platform, it takes just a few minutes to set up an account if you want to dabble in the world of options trading. Here is everything you need to know about how to do options trading on eToro.
What Is Options Trading?
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Options, at their most basic level, are exactly what they sound like: they are a contract that gives you the option to buy or sell any asset listed on the option at a certain pre-determined price or on a certain date. These contracts, called options, have become an asset unto themselves and are often traded and valued along with the actual assets they are based on. An option that allows a user to buy at a certain price is called a “call” option. An option that allows a user to sell at a certain price is called a “put” option. You will see these names often.
The market and the transactions regarding options can get much more complicated than this, with secondary markets, complicated contracts, and more detailed options. But online brokers like eToro, which are focused on newer and younger traders, usually keep their options relatively simple and easy to manage.
But why not just buy and sell at the current market price? Those who believe they can predict how the market will behave in the future might want to make money by making bets on that prediction. Options can be used to protect your investments against risk as well. Whatever your reason for buying options, they are all based on what you believe the market will do in the future in reference to their current market price. As with all stock trading, there is no guarantee and there is no surefire way to beat the market every time.
Why Pick eToro for Options Trades?
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Like other digital-first trading platforms released in recent years, eToro features a clean, easy-to-use, and simple design that makes it easy for users to manage their money and participate in the global market. The language is simple and removes much of the jargon and complicated financial speak that plagues larger trading platforms. See how to get started buying stock on eToro.
An eToro account allows users to trade stocks, buy, store, and use cryptocurrencies, trade options, and much more. You can find helpful guides, videos, and tutorials to learn more about managing your money, and you can practice trades with a free $100,000 mock account along with other resources to refine your trading and investing strategies. You don’t need to know anything about stock trading to get started.
Regarding options trades specifically, eToro does not charge any commissions on options contracts, though there are regulatory fees that apply to some options and pass-through fees for processing charged by some clearing firms. If you want to know the exact details of the fees that might be charged for your options, we encourage you to visit eToro’s fee schedule.
Additionally, any uninvested cash in your options account can earn interest, up to 4.9% annually (as of the writing of this article).
Finally, the eToro app allows users to participate in something known as social trading. All users can follow other users of the app and see what they are trading and when, compare trades, and collaborate on investing strategies. This social investing feature is also included in the options trading platform. If you have a favorite investor, you can follow them on the app and copy their trades.
How to do Options Trading in eToro
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To begin trading options you will need an eToro account.
It is pretty easy to set up your eToro account, and if you have another digital-first trading account, you’re going to be familiar with how eToro works. If this is your first time using a trading platform, whether new or traditional, worry not, you can have everything ready to go for your first options trades in just a few minutes. All you need is a smartphone (or a web browser), a bank account to connect to the app, and an address in one of the many countries where eToro operates. The stocks (and by extension, the options) available change based on where you live, so if you have a particular investment in mind, it would be worth your time to verify if eToro offers trades of the asset in your country.
Setting up your account is straightforward, and eToro will walk you through the process once you get started (either by downloading the mobile app or on their website).
If you are only interested in trading options and not stocks or cryptocurrency, you can instead download the eToro Options Trading app and set up your account directly there. (Read about the differences between Coinbase and eToro for cryptocurrency here). Your account details will remain the same between your options account and the main eToro trading platform.
Whether you begin in the eToro app or the eToro Options Trading app, you will need to qualify for an options account before you begin. Qualification is based on your acceptable risk and your plans for investment. Once you are approved, you will need to transfer at least $10 into your account to activate your account and begin trading. Remember the funds in your eToro account are separate and different from the funds in your eToro Options account.
To begin trading options, first search for the company you want to trade with within the app or the website. On the company’s hub page, select the “trade” option.
Second, select whether you want to make a put, call, or spread option. We suggest researching the different options (doing so on eToro makes this much easier) to make sure you’re confident in your choice. The choices are not interchangeable, and each will have vastly different results based on what you want to accomplish.
Then, you will need to select the details of your option contract. These include the expiry date of the option (when the contract will resolve), the prices for your option (either the put or call price) called the strike price, and the number of contracts you want to buy (the options are purchased in groups of 100 shares).
Once you are done, review the details of your contract to make sure everything is correct. eToro does a great job of explaining each step and you can always edit the details before finalizing the contract. If you are satisfied with your option, you will then swipe up on the app screen to purchase your option. You can also save it as a draft. A draft trade allows you to practice making and purchasing options without the risk of losing money on a bad option. Draft options will resolve like normal options, and they will show what profit or loss you would have made if it were real. You can practice with draft trades as often as you like to get a handle on what you’re doing and gain some confidence. If you like one draft option particularly, you can always turn it into a real option at any time before the expiry date.
Now that you own your option you have a few things you can do with it. You can wait until the expiry date and see if you made a profit or loss, or you can trade it before the expiry date. There are different ways to list your option for sale, and you can set your own price or pick one of eToro’s recommended prices. The app will explain the options for you if you don’t know what to do. The better your option is, the higher the price you can set for it.
That’s it! That’s all you need to get started. Have fun and good luck!
If you’re curious about any other part of eToro’s products and services, check out this page: a regularly updated list of all our eToro guides, news coverage, and lists of benefits.
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