Trading options is, in many ways, very similar to trading any other financial instrument, such as stocks. However, there are some important aspects of options trading that investors need to know. This step-by-step guide will outline what they are and how to place your first trade.
Options trading offers a way of developing more sophisticated investment strategies. This guide will walk you through the process of trading options and outline the steps involved, from logging in to making your first trade.
Log in to your Account
To begin trading options on eToro, you must first set up an options trading account on the main eToro app. Depending on your experience you may need to answer a few questions before being approved and your options trading account must be registered and verified before making your first trade.
Tip: Account verification is required to ensure compliance with regulatory standards and to provide a secure trading environment.
Fund your Options Trading Account
Once you’ve logged in to your new account you can start depositing funds. eToro offers several convenient payment options including transferring money from your existing eToro investment account or eToro crypto account.
Simply navigate to the Wallet tab, select ‘Internal Transfer’, enter the amount, and then click ‘Confirm’. Or alternatively fund your options account using a bank transfer.
Each method has its own processing time and fees, so it’s advisable to review these details beforehand to select the most suitable option for your needs. Any time delays can be seen as an opportunity to familiarize yourself with the options trading interface and to check for any notifications or updates that might affect your trading decisions.
Funding your account adequately is essential as it determines your purchasing power and the range of options you can trade. Always ensure that your account balance aligns with your trading strategy and risk management plan.
Tip: The funds in your eToro investment and crypto accounts are counted as different from the funds in your options account.
Choose your Option
Selecting the right option is a critical step in your trading journey. When choosing an option, look for favorable market conditions that align with your investment goals.
Use the Discover page to search for your favorite stocks or ETFs, and find one that you like. Then, hit “Trade” followed by “Trade Options”.
Tip: The eToro Academy is a great source for information on technical terms such as expiry date and strike price.
Purchase your Option
After selecting your desired option, the next step is to purchase it. Before finalizing the purchase, review all relevant metrics such as the option’s premium, implied volatility, and potential payoffs. This review will ensure that you have a clear understanding of the trade’s potential outcomes.
Finally, select the number of 100-share contracts you’d like to purchase, then tap “Submit”.
Once you’ve purchased your option, you have some choices to make. One choice is to wait until the expiry date to see what happens. If the stock moves enough in the expected direction, you could make a profit. eToro will close your option at 3:30pm EST on its expiry date*, and you’ll see your pending profit in your account at that time.
Trade your Option
If you decide you don’t want to wait for your option to expire and cash out, you can sell it to someone else in the market. You’ll have to go to your existing ticket, and decide what order type you’d like to pursue: market, limit, or trigger.
If you choose a limit order, simply set your ask price (we’ll display choices for you, based on what the current bid prices are for similar options), a time limit, and wait to see if someone takes you up on your offer.
Tip: Choosing the right order type can enhance your trading efficiency and help you achieve your investment objectives.
Other Ways to Trade
If you’re not ready to commit immediately, you can book virtual trades using the eToro draft trading feature. This flexibility allows you to familiarize yourself with the lifespan of options, refine your strategy, and to some extent simulate what trading options is like.
Tip: Options trading might not be available for you depending on your country. You can check whether or not the eToro options service is available in your country by visiting this page.
Final thoughts
Options trading is a versatile tool for managing portfolio risk and exploring market opportunities. This guide empowers you to begin trading on eToro with practical steps and insights to foster informed trading decisions.
Remember, successful trading requires continuous learning and adaptation to changing market conditions.
Learn more about option trading strategies by joining the eToro Academy.
*In rare instances, we’re unable to sell expiring positions at 3:30 pm EST. In these instances, clients are responsible for losses due to assignment or expiry.
Quiz
FAQs
- What steps do I need to follow to start trading options on eToro?
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To start trading options on eToro, you need to register for an account, log in to it, fund it, choose your option, purchase it, and decide on your trade order type. Each step is crucial for a successful trading experience. For more details, refer to eToro’s comprehensive guides.
- How should I choose between market, limit, or trigger order types?
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Choosing between market, limit, or trigger order types depends on your trading strategy and objectives. Market orders are for immediate execution, limit orders allow price control, and trigger orders automate trades based on conditions. Consider your priorities and investment goals when selecting an order type.
- What are the advantages of virtual trading on eToro?
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Virtual trading on eToro allows you to simulate trades without using real funds. This feature is beneficial for testing strategies and gaining confidence before executing actual trades. It provides a risk-free environment to refine your approach and improve your trading skills.
It is important to keep in mind that your trading psychology will need to adapt when you switch from trading virtual to real funds.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.