Investing in Options – How To Invest in Options for Beginners 2021

Fact Checked by Gary McFarlane

Are you looking to delve head-first into the world of investing? If so, the chances are high that you’ve considered investing in options. And why wouldn’t you? When sufficient precautions are taken, they offer investors huge upside potential and minimal losses. However, you should exercise caution when investing because if you don’t do the proper due diligence then you’re likely to lose a large amount of your capital. That being said, when you plan your trades and use risk management strategies, a large portion of this risk can be mitigated. Therefore it’s not difficult to see why investors have been flocking to options trading in recent years, for many, the potential is simply too great to miss out.

Unfortunately, as with most investments, learning how to invest in options can pose a challenge, especially for those without much investment experience. So, to help ensure our readers don’t have any trouble getting started, we’ve created this article covering the best options brokers, some pros and cons to investing in options, and exactly how you can start investing in options today. 

#1 Platform for Investing in Options Australia – Avatrade

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Investing in Options – Step by Step Guide 2021

We appreciate the fact that not everyone has the time to read an entire article and some just want a quick rundown on how to invest in options. Well, if that sounds like you, we’ve got you covered! This section briefly explains exactly how you can invest in options today. However, if you’d prefer a more detailed guide, you can find that toward the bottom of the article. 

  • Step 1: Open an AvaTrade Account: Before you start investing you’ll need to register with a broker. AvaTrade has topped our list of best options brokers, so we’ll be using them for this guide. Just type AvaTrade.com into your browser, press “Register Now”, and type in the necessary information.
  • Step 2: Verify your Identity: AvaTrade is a regulated broker, which means that they have to comply with strict rules surrounding money laundering. As such, you’ll need to verify your identity before you can trade. Luckily, it only takes a couple of minutes and all you’ll need is a photo ID (passport, driving license) and proof of address (utility bill, bank statement)
  • Step 3: Fund your Account: Once your account is verified you’re almost ready to invest. All that’s left to do is fund your account. Just click on the “Deposit” button type in the amount you plan on investing, and press “Deposit” AvaTrade supports deposits using credit/debit cards and bank transfers. 
  • Step 4: Invest in Options: Now that you’ve funded your AvaTrade account it’s time to invest. Just type in the name of the asset you’d like to purchase, enter how much you’d like to invest, and press “Deposit”. 

Investing in Options – Choose a Broker

It’s easy to get overly excited and jump the gun on an investment, oftentimes people get so caught up in their crypto or options investment they can forget about one of the most important steps; choosing a reputable broker to invest with. With the mountains of information available online, it can be difficult to sift through all your choices and select the best broker. To help make this process easier for our readers, we’ve created comprehensive reviews on our picks for the top 3 options brokers in 2021. 

1. AvaTrade – Best Overall Options Specialist Australia 

Since its launch in 2006, AvaTrade has grown to be one of the foremost options brokerages in the world. This success is likely due to their understanding of what users want from a trading platform. They’ve made sure that the platform is completely secure, even implementing additional security measures for sensitive documents. Additionally, they’ve gone the extra mile for anyone wanting to trade options, by creating a platform dedicated to investing in options. 

Security & Privacy

It’s clear from the get-go that the team in charge of security at AvaTrade takes pride in their job. They’ve taken care to implement several industry-leading security measures to make sure the platform is safe for investors. There are 3 main components to AvaTrade’s security, the first being regulation. By following strict rules outlined by ASIC (Australia’s authoritative body), AvaTrade ensures the data and funds of their users are secure, preventing any issues with missing funds. 256-bit SSL encryption has also been used to stop any would-be attackers from stealing your data while it makes its way to the central AvaTrade servers. This is an incredibly important aspect of creating a secure platform, as the data being transported over a network is a major weak link. And the final way AvaTrade has made sure their platform is safe for investors is by utilizing McAfee Secure, a powerful piece of technology designed to obscure sensitive documents (card information, identity documents, etc) before it’s sent back to the central server.

Features

Although security is one of the most important factors when selecting a brokerage, without a powerful set of features to back it up, AvaTrade wouldn’t have made our list of the best options brokers. AvaTrade has managed to fit an impressive amount of useful features in one neat package, providing investors with a powerful, yet easy-to-use investment platform. Those without much trading experience are in good hands with AvaTrade. A good amount of video trading guides have been created to help investors make better-informed decisions. ZuluTrade is an automated social trading platform that allows users to mirror the traders of more experienced users. This is hugely beneficial for those wanting to dip their toes into the world of trading and learn new strategies while taking on minimal risk. And to round off our AvaTrade review, they have created an extremely useful platform called AvaOptions, which as you may have guessed from the name, is a dedicated options trading platform. This platform has been designed to provide users with a highly-accessible, top-quality options trading platform. 

AvaTrade Fees

Fee Type Fee Amount 
Commission Fee 0%
Deposit Fee $0
Withdrawal Fee $0
Inactivity Fee $50 after 3 months & $100 after 12 months

 

Pros

  • Regulated by ASIC
  • 256-bit SSL encryption
  • McAfee secure
  • ZuluTrade  
  • Video trading guides
  • AvaOptions 

Cons

  • UI somewhat dated
  • AvaOptions has occasional log-in issues

Your Capital is at Risk.

2. CMC Markets – Best Educational Options Broker Australia 

One of the best-known options brokerages in Australia, CMC Markets has been serving investors since 1989, giving them over 30 years of experience in the space. With numbers like this, it’s no surprise that CMC Markets has managed to create an investment platform without compromises. 

Security & Privacy

It would be hard to operate for over 30 years without having top-notch security, after all, you’d simply become an easy target for hackers. So, to prevent this from happening CMC markets have used some interesting techniques. First of all, like all reputable Australian brokerages, they’re regulated by ASIC, preventing them from engaging in illicit activities behind the scenes. A combination of biometric security and 2FA has also been implemented as a way to ensure account safety. Even in the event of your account getting compromised, you’re well protected. Before you can complete any sensitive account actions, you’ll have to enter a  code that gets sent to either your mobile or email. And to prevent any issues occurring should they go into insolvency or have liquidity issues, customer and corporate funds are kept separate, locked away in segregated bank accounts. 

Features

It’ll be evident from the first time you visit the website, that CMC Markets has made sure to focus its efforts on refining the basic features rather than creating gimmicky features to draw users in. Trades are executed on the platform lightning-quick, this helps users to get their buy/sell orders through on time. Customer support is often overlooked until you actually need it, which shouldn’t pose a problem, but unfortunately, many platforms offer lacklustre support. Leaving investors with unanswered questions can quickly lead to confusion and in some cases anxious users, who will often migrate to another platform. CMC Markets seemingly understands this because they offer 24/5 support, which considering many markets close over the weekend should be ample for 99% of requests. If customer support can’t answer your query the chances are the answer can be found in the range of educational material CMC Markets offer its users. These guides cover a huge range of topics, comprising everything from the basics to advanced trading strategies, this is nice to see as the majority of options brokers simply offer a few guides on the basics and call it a day. 

CMC Markets Fees

Fee Type Amount
Spread Variable
Withdrawal Fee $0
Deposit Fee $0
Inactivity Fee $15 after 12 months

 

Pros

  • Regulated by ASIC
  • $85,000 FSCS insurance 
  • 2FA
  • Segregated Bank account
  • Educational material
  • 24/5 customer support
  • Speedy trade execution

Cons

  • Steep inactivity fees
  • Could benefit from additional analysis tools

67% of retail investor accounts lose money when trading CFDs with this provider.

3. Capital.com – Most Secure Options Brokerage Australia 

Capital.com review

As of 2021, Capital.com is currently home to over 1 million users, an incredibly impressive statistic because they’ve only been operating since 2016. It appears Captial.com understands the importance of security to investors because they’ve chosen to implement several advanced security features, giving them the title of most secure options brokerage in Australia. 

Security & Privacy

One of the most secure options brokerages out there, Capital.com protects its customers by using a mixture of strict rules and advanced technology. I think we can all agree, data protection is important, you wouldn’t want a load of people looking through all the information you’ve provided on a website. This is why Capital.com has been careful to make sure that they’re completely compliant with PCI Data Security standards, this means that as a customer, you can rest easy knowing the proper precautions are being taken when storing your data. Further regulations put in place by ASIC are also strictly adhered to, ensuring Capital.com users don’t have to worry about their information being mistreated. Additionally, to protect customer data while it makes its journey to the Capital.com central server, a new version of SSL encryption has been used, called Transport Layer Security. As the name would imply, the purpose of this technology is to ensure that your data makes its way back to a primary server without being intercepted by nefarious individuals. 

Features

Despite its age, Capital.com is full of excellent features, designed to make your life as an investor that little bit easier. Heaps of educational material have been provided in an attempt to make sure all users have a solid understanding of investing before parting with their hard-earned money. To this effect, Capital.com has also created an trading app called “Investmate” which allows users to learn about trading in a simple, yet effective manner, all from the comfort of a mobile device. A platform taking the time to properly educate its users is always a good sign, it shows they care about their users rather than saving money/time. Technical traders rejoice, Capital.com has full TradingView integration, which means you have access to all the charting/analysis tools you could possibly need. This means that regardless of how complex your trading strategy is, you’ll be able to plot it on Capital.com. 

Capital.com Fees

Fee Type Amount
Commission 0%
Withdrawal Fee $0
Deposit Fee $0
Inactivity Fee $0

 

Pros

  • Regulated by ASIC
  • Transport Layer Security
  • PCI Data Security compliant
  • Investmate
  • TradingView integration
  • 2FA

Cons

  • Not available to US residents
  • Missing certain investment types

 76.72% of retail investor accounts lose money when trading spread bets and/or CFDs with this provider.

Investing in Options  – Broker Price Comparison

We understand that it can be hard to visualize how each option broker stacks up against one another. So to help highlight the differences, we’ve included this useful table comparing the fee structure of the top 3 best options platforms.

Broker Commission Deposit Fee Withdrawal Fee Inactivity Fee
AvaTrade 0% $0 $0 $50 after 3 months, $100 after 12 months
CMC Markets 0% $0 $0 $15 a month after 12 months
Capital.com 0% $0 $0 $0

 

What are Options? 

Trading options is typically considered to be a speculative investment. Rather than directly investing in an asset, you’re purchasing a contract that gives you the right to buy an asset for a specific price, within a certain time frame. Although you have the option of purchasing an asset once you’ve acquired a contract, you’re not obligated to. This means that if the investment goes in the opposite direction to your expectations, you won’t be left holding a depreciating asset, instead, you can let the contract expire and all you’ll lose is the premium. 

Calls

A call option is akin to taking a long position. If you think an asset is primed to increase in value you can take out a “call option”. Say the price of an asset is currently $1000 and you think it’ll rise to $1500, you can take a call option out at $1250. This means that if it does rise to $1500, you can purchase the asset for $1250 and pocket $250 in profit. However, if the asset falls in value, you can simply yet the contract expire and you’ll only lose the premium you paid to take it out.

Puts

A put option is similar to taking a short position. If you believe an asset will fall in value you can take out a put “option”. So, if an asset is currently trading for $1000 and you think it will fall to $500, you can take out a put option at $750. This gives you the right to sell the asset for $750, so if it falls to $500, you’ll be earning a profit of $250. However, should the asset rise in value, you can once again let it expire, losing just the premium fee.  

Are Options a Good Investment? 

Investing in shares or options can be extremely lucrative. The upside potential is huge and if you know how to invest in options correctly, much of the potential risk can be mitigated. This makes for an excellent opportunity to earn profits. 

No Commitments

As we mentioned, if an asset isn’t going in the direction you predicted, you don’t have to act on the contract. This is hugely beneficial as with proper risk management, it essentially stops you from getting into losing positions. If you’ve ever been stuck in a losing trade waiting for it to rise back up so you can minimize losses, I’m sure you’ll appreciate how useful this can be.

Minimal Risk (Risk Management)

Somewhat linking to the previous point, with proper planning and risk management, options trading can be regarded as relatively low risk. This is because instead of risking all of your investment, you’ll only lose a fee called a premium when a trade doesn’t go to plan. Say an asset is worth $1000, you purchase an option for $100,000 worth of the asset thinking it will increase in value. Instead the asset drops in price to $500, instead of being $50,000 out of pocket you’ll only use the premium (usually around 1-5% so $1000 to $5000).  

Investing in Options – What are the Risks?

Despite being able to massively reduce the risk associated with investing in options, they’re still considered to be a high-risk investment and that’s for good reason. If you’re not careful or take out too many contracts you can quickly find yourself losing huge amounts of money. 

Premium Fees

In a similar fashion to the taxman, regardless of how your investment turns out, you’ll have to cough up the money for premium fees. Because you’ll be expected to pay this fee regardless, if you fail to do your due diligence, you’re liable to lose out big time. Because the premium fee varies depending on how likely an option is to come to fruition, you could find yourself charged far more than you’d expect. 

Confusing for New Investors

Although the same could be said for almost every investment, this is especially true for options trading. Because of all the jargon and complex concepts, options trading can be extremely difficult for beginners to comprehend. And because you’ll be expected to pay fees regardless if you don’t completely understand what you’re investing in, you may quickly find yourself left with a large debt to settle. 

How to Invest in Options with AvaTrade

Figuring out exactly how to invest with a new platform can be difficult, if nothing else you need to make sure you’ve met all the prerequisites. Despite the best efforts of brokerages, learning how to use a new platform can be incredibly confusing, especially with the amount of jargon thrown around these days. So to ensure our readers have as little trouble as possible, we’ve created this guide, explaining exactly how you can start investing in options with AvaTrade.

Step 1: Open an account with AvaTrade

Before worrying about investing the first thing you’ll have to do is register with a trusted brokerage. If you’re looking for an excellent all-around platform then we recommend AvaTrade, they have heaps of advanced heaps and even a dedicated options trading platform. To start investing with AvaTrade, the first thing you’ll have to do is type “AvaTrade.com” into your browser’s search bar and press “Register Now”, then just fill in the required information. 

67% of retail investor accounts lose money when trading CFDs with this provider.

Step 2: Verify your account

Now that you’ve registered with AvaTrade, you’ll need to verify your account. This is because Avatrade is a regulated platform and as such has to comply with rules surrounding money laundering and the protection of its customers. Luckily, the verification process only takes a couple of minutes and the only documents you’ll need to provide are a photo ID (passport, driving license) or proof of address (utility bill, bank statement).

Step 3: Fund your account

Once your account has been verified, you’re only one step away from investing in options. All that’s left for you to do is fund your AvaTrade account. You can do this by clicking on the button marked “Deposit”, typing in the amount you’re planning on investing, and once again pressing “Deposit”. After you’ve done this and the transaction has been processed,  you’ll see the funds credited to your account. AvaTrade supports deposits using either credit/debit cards or bank transfers. 

Step 4: Invest in Options!

After the funds have arrived in your AvaTrade account, you’re ready to invest! Simply type the name of the asset you’d like to purchase into the AvaTrade search bar, click on the “Trade” button, enter the amount you’d like to invest, and press “Open Trade”. You’ll be able to monitor your investment from the “Portfolio” section of your account.

Investing in Options – Conclusion

To round off, if you know how to invest in options they present an extremely lucrative opportunity. However, if you go into options trading half-cocked you’re likely to get stung. Because of this, we recommend either using a practice account to sharpen your skills or only risking an amount you won’t miss, until you get a feel for how options trading works. By sticking to one of these principles you can minimize the amounts of losses you’ll take when learning, giving you more capital to play with once you have your strategy dialled in. Although the majority of your success will be based on your preparation, selecting a solid brokerage also plays a huge part. This is because, without a top-rated brokerage behind you, you’re far more likely to find yourself paying unreasonable fees or missing important trading features. Therefore, we have a recommendation for anyone unsure on which brokerage seems right for you, and that’s AvaTrade. They offer a good amount of educational material, as well as a practice account for you to improve your skills before risking real money. On top of this, AvaOptions is a dedicated options trading platform created by AvaTrade, meaning you’ll have access to all the features you need to have a successful time investing. 

Best Options Broker Australia – Avatrade

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Our score10
  • Buy over 800 stocks with 0% commission
  • Social trading network
  • Copy over 12 million traders and investors
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About Jay Leonard PRO INVESTOR

Jay is a UK based cryptocurrency expert, specialising in fundamental analysis and medium to long term investments. He has a great deal of hands on experience in the space and a current focus on institutional adoption.