Where Can I Practice Options Trading?

investing options investing options trading course Sep 20, 2023

When you begin your journey to become an astute options investor, you may find yourself running into a few hurdles. One of the common obstacles investors stumble over is learning the vocabulary of Wall Street. Another is figuring out where to begin their education in a vast sea of alternatives. Fortunately, Record Options Investing’s 14-Day Option Investor course is designed to help investors leap over both of those potential obstacles.

The next issue novice investors face is one that will require a little initiative on your part. You’ll need to find the right way to practice your new investing skills. As iconic playwright Anton Chekhov wrote, “Knowledge is of no value unless you put it into practice.” And practice you should, but not with your personal finances, especially not as a novice investor. Before you invest real money, you’ll need an options trading simulator, such as a paper trading account with TD Ameritrade.

For those unfamiliar with the terms “simulated trading” or “paper trading,” think of it as a way to practice your investment skills without the looming fear of financial ruin. A good paper trading platform mimics the moment-to-moment fluctuation of the stock market and allows fledgling investors the opportunity to enter practice trades backed by real-world math without risking their capital.

When you want to succeed in the world of finance, you should absolutely create your initial trades in a virtual options trading environment. Paper trading is a fantastic way to get your investing feet underneath you without putting your own money on the line. Paper trading for several months before entering an actual options trade is an integral part of becoming a capable investor (We cannot emphasize this enough!)

The Best Way to Learn Options Investing?

Are you trying to understand options investing? Learning the in’s and out’s requires more than a basic grasp of this complex investment vehicle. Attempting to piece together a complete knowledge of options investing with random articles, advice from social media platforms, or free online videos might seem accessible, but most will find themselves quickly overwhelmed by the options available or pulled in separate directions by different learning methodologies.

First, you have to learn the terms utilized in the stock market. Wall Street has a lexicon all its own; the best place for novice investors to begin their education is to start learning this new vocabulary. It’s only once you’re familiar with this vernacular that you can grasp the higher-level mechanics that will guide you toward a brighter financial future. One of the best methods for learning Wall Street terminology is listening to business news shows throughout your day, whether it’s when you’re commuting to work or cleaning dishes in your kitchen.

When you’ve got the academic portion of your training under control, you’ll need to begin researching the companies in which you intend to invest. That step is a long-term commitment in and of itself, because it requires daily sifting of news articles and market statistics. While you don’t need to spend whole days on your research, you’ll find that getting into the habit early on makes for smarter, more informed trades.

Learning a new vocabulary and identifying option investment opportunities may sound daunting at first, but you can master these skills with help from the education platform at Record Options Investing (ROI). Our step-by-step lessons will provide insight in a relaxed manner. Of course, to hone those skills and perfect those research techniques, you’re going to need to practice with an online trading simulator.

Why Should I Practice Options Investing?

Your options investing knowledge is purely theoretical during the early days. Even if you’ve completed ROI’s educational course, even if you’re doing research night and day, it would be less than diligent to make your very first trade using real money.

Legendary golfer Sam Snead had what some consider to be the most perfect swing in the history of the sport. When asked how he’d developed his form, Snead gave credit to practice and repetition. He famously said, “Practice puts brains in your muscles.”

In other words, your new education is invaluable, but practical knowledge stems not just from academics, but from hours of practicing and honing your new skills. You’ll stumble. You’ll make mistakes and use those experiences to learn important lessons. Would you prefer to learn that initial knowledge using simulated money or your own hard-earned capital?

Above is a screenshot from TD Ameritrade’s thinkorswim® trading platform. If you’re not familiar with options investing, this option chain looks really daunting and inscrutable. This is exactly why you need to practice your skills with paper trading for months prior to making your first trade. There’s lots of ways to get confused or make mistakes. Side step those expensive errors with education and practice.

Of course, sparing yourself economic heartache is just one of the many reasons you should start working with an online trading simulator in tandem with moving through our financial literacy course.

Learn the Software

If you’re going to jump into options investing, you’ll be spending countless hours working with whichever trading software you choose. Online trading platforms are exceptionally powerful programs that utilize real-time data in various forms, from charts to up-to-the-minute pricing and beyond.

That power makes these programs somewhat unwieldy for newcomers. Since your chosen software is the gateway to your investing future, it works to your advantage to spend time learning to use every part of your trading platform before you put real money on the line. After all, when you’re actively trading, there are no take-backs on a misplaced click.

Highlight Your Weaknesses

Famed painter (and narcissist) Rembrandt reportedly once said, “Practice what you know, and it will help to make clear what now you do not know.” That may be the most crucial reason for paper trading. When you have access to a space where you can apply the lessons you’ve recently finished, you not only hone your skills, you also shine a light on those areas that require more attention and time.

When you begin trading, you’ll inevitably realize that you don’t remember all of the details from certain portions of ROI’s options investing course. It’s only when you’ve executed a trade incorrectly that it becomes clear that you need to go back and review the information you missed. A solid options trading simulator is the perfect way to get the kinks out of both your strategies and your technique without spending a cent.

Revisiting the lessons you’ve grasped the least is the best way to perfect your knowledge, and practicing them on an online trading simulator provides a safe space for sharpening your skills.

Test Your Personal Guidelines

As you learn the components of an options contract and the accompanying strategies you’ll employ when trading, it’s a smart idea to develop a set of personal rules that govern each of your investment choices. As you move through the ROI’s education course, we’ll provide suggested guidelines that you can incorporate into your investment rubric.

Once you pick your investing rules, however, it’s borderline foolish to jump right into a live trading environment to test them. Using an options trading simulator provides a method for testing your rules in a risk-free environment.

Try Lots of Different Trades

Most investors will likely begin investing with a limited sum of money. While it is possible to grow that amount over time with strategic investments, at first you’ll find yourself restricted to the type and number of trades you can complete in a live trading environment.

That’s not the case with an online trading simulator. Virtual options trading lets users pick how much money is in their account. After all, if it’s not real money, why shouldn’t you have millions? When you can flood your paper trading account with funds, you’re free to spread out and try several different trades at once. Try naked trading, try sussing out your own covered calls. (Please Note: We never recommend naked trading with real money ever.) Dip a finger in the various market segments, from consumer to infrastructure.

You’ll find that the more trades you conduct, the easier the process will become and the faster your skill will grow.

Get Reckless

Regardless of which options trading simulator you decide to use, remember that paper trading is a great time to just go with your gut. Nothing you do on a virtual options trading platform impacts your financial status. It’s purely a learning experience. So, go nuts.

You should certainly use any paper trading platform as a way to practice working with the software itself, and as a means to test out the strategies you’ll learn with Record Options Investing. However, a lot of retail investors who try options investing find themselves itching to try new ideas and put their knowledge to the test from the start. Don’t fight that urge, but refrain from backing it up with real money.

It’s extraordinarily simple to lose a colossal amount through uninformed or over-confident investing. However, that’s a lesson many investors need to learn first-hand rather than accepting our word on the matter. Using an options trading simulator is a great way to understand the value of risk management without losing thousands of real-life dollars.

As you learn more about investing, you’ll run across innumerable different strategies with a varying array of risk. Some of these may be worthwhile, but most will be bunk. Think of it like buying a new car. You’d absolutely test drive it before putting down real money, right? The same idea is true with test driving your investment knowledge and skills with a paper trading account.

Use a Trade Journal

One of the most vital parts of practicing with a virtual trading simulator is learning to develop good habits. For example, you should keep an active trade journal (even when you’re paper trading).

For those who may not know, a trade journal is a running catalog of every investment you make. It keeps track of a variety of individual and cumulative statistics, including:

Trade specifics like strike price, expiration date, premium, etc.
Individual insight into your return on investment, the amount of money you’ve collected, and more.
Running totals that explain how your investments have performed year-over-year.

While your online trading simulator may keep those stats for you, managing a personal trade journal is invaluable. Not only does it keep your mind focused on the critical numbers involved in every trade, but it puts your wins and losses in stark black and white. Actively using a trade journal is one of the best means of learning which strategies work and which should be cut out of your rules.

Gain Confidence in Yourself to Practice Options Trading

For a lot of novice investors, putting options strategies into play with their own money is scary. After all, there’s a distinction to be made between learning about options investing and actually putting in the trades. We understand that the thought of losing your hard-earned cash through poor maneuvers is understandably unnerving.

Practicing with a virtual options simulator can demonstrate all you’ve learned and inevitably help grow your confidence in your skill. As Bob Ross once explained, “Talent is a pursued interest. Anything that you're willing to practice, you can do.”

By practicing in a penalty-free environment, an options trading simulator eases the transition between student and investor.

Check Out thinkorswim®

There are several online trading simulators that you can choose from when you start paper trading. At Record Options Investing, we recommend using TD Ameritrade’s thinkorswim® platform. It stands out as one of the most robust trading platforms available to retail investors and it’s the platform ROI uses in its educational course. You’re free to use whatever trading platform you like, but keep in mind each platform has its own proprietary environment.

thinkorswim® is free to download and use. You’ll just need a TD Ameritrade account, but that won’t cost you anything (except a little real estate in your inbox … and you might even find some of their messages instructional).

Far and away the most important reason to use thinkorswim® is the platform’s emphasis on realism. There is literally no difference in function between thinkorswim’s paper trading and live trading platforms. As a result, when you’re virtual options trading on thinkorswim, you can count on two primary benefits:

Your trade results will reflect real fluctuations in the stock market. As a result, any paper trade you execute thrives or fails based on real-world conditions. You may not be gaining or losing any money, but you are getting invaluable options investing experience.
The mechanics of thinkorswim’s paper trading platform directly mirror the live trading platform. Therefore, when you’re practicing your options education strategies, you’re also teaching yourself how to use the program itself. As you transition to real trades, this familiarity with the software will prove invaluable.

Again, there are several possibilities at your fingertips when you want to start learning how to invest in options, but thinkorswim® is largely considered the most robust.

There’s Always Tomorrow … or Next Year

Once you begin researching potential investing options, you may find yourself sucked into “the hype.” One thing is consistent on Wall Street though: someone is always willing to tell you where to put all of your money right away. (It’s called “talking their book.”) Don’t buy into this tactic. There’s always another great opportunity down the line.

To get a firm grasp on your fundamentals, put them to the test in an online trading simulator. You don’t have to get caught up in the meme stocks trends or breaking stock market news alerts. There’s always more opportunity around the corner. Your top priority as a beginner is to practice until you’ve defined your risk tolerance and are mentally prepared to follow an opportunity with your real money.

You’ll find that being patient with your learning process is the best way to fully understand the material at hand.

How Do You Get Approved to Trade Options?

Because the science of trading options effectively is much more nuanced than stock investment, there are a few extra steps involved before most financial outlets will allow you to trade options.

There are varying degrees of compliance for getting approved to trade options. It all depends on the financial institution you choose. Some require several questions and a slightly longer period of time before you get approved. Others, like trading platform Robinhood, make it alarmingly simple to get approved.

When you apply for a trading account, you’ll need to be prepared to answer questions about your annual income, your current investment capital, your financial liquidity, investment objectives, risk tolerance, and more. The questions on most applications will be straightforward multiple choice. Simply answer honestly and you should be approved within a day or two.

A Cohesive Approach to Practice Options Trading

When you sign up to access our 14-Day Option Investor course, we’ll provide you with all the information you need to approach investing with comfort and confidence. You’ll have to practice the skills we teach, but once you’re equipped with the right knowledge, you might just discover that practice can be terrific fun.