Customers must provide companies with details about their financial status and trading experience, and sign a document saying they received a copy of the Characteristics and Risks of Standardized Options from the Options Clearing Corp.

The 5 Rules of Options Trading

Karen Fitchett, 64, said the learning curve has been steep. The New York real estate investor said she has lost tens of thousands of dollars trading options since starting in , which is why she still attends classes like the one provided by Thinkorswim. Subscribe for original insights, commentary and discussions on major news stories of the week, from the InvestmentNews team.

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Tax April 1, Biden tax hikes dominate adviser-client discussions. Because brokers have to give you alerts throughout the day so that you can trade and make a brokerage for them. Impact cost is much higher than the 0. Let me tell you a small fact; forget about the companies listed in NSE India.

Even for the nifty 50 companies which have a huge market capitalization, the criteria to be listed under nifty 50 is there impact cost per trade should be less than 0. So if in last 90 days any companies have traded in good liquidity that is under 0. Now think Now every time a buyer went to buy more quantity offered by the seller i. Then impact cost will be much higher than your trade if your trade is bigger in such cases. So every time exchanges have these kinds of pricing patterns and execution data coming, they keep calculating the impact cost.

I have explained these calculation in one of my video of initial classes on my course A complete course on Indian stock market. The extra cost incurred when you give extra price than the median price to execute a trade is called the impact cost.

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As an investor you need not calculate this impact cost. But if you are a trader and you trade in a hurry then you end up buying at seller price and selling at best buyer price. So you always end up giving certain impact cost. In retail industry impact cost is hardly discussed. But if you go and work in any big organization where you have to execute large trades, impact cost will be bigger than brokerage cost, government transaction cost, SEBI charge, exchange turnover charge.

These things are minimal against the impact cost! This is something I can tell you with my own experience. If you are going to trade extensively you have very high chance of losing money if you are doing a manual trade. For every 10 people who told me they have lost money 9 of them were traders. Whenever you get excited by the word trading, just think about these costing and whether you will be able to trade profitably. I always say that you have to test on a paper every time you are going to trade.

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I know that the impact cost cannot be taken very clearly when you are doing it, as market is very dynamic and you would not know at what price you bought or sold the shares unless you execute it. But then there are simulators which test the real market environment. Only if you are a tech savvy think of trading or else trading is an open gambling. Investment industry in India is working on a different note currently. There are many other discounted brokers too. But many prefer traditional ones. In recent years brokerage cost has gone really low, so the 5 lakh you invest will not fetch him even Rs.

And to make you invest 5 lakh rupees he would have called and convinced you a lot of times. But when you just come and just invest after doing all these efforts from broker side, broker really gets disappointed. So every time they will keep pitching you to trade and tell you that this stock is going high, or the other stock seems good and to buy it. Once you buy it they will ask you to sell as there is better option or their research team gave the latest data and so on. All these are for you to trade and once you trade and make profit or loss they get their broker fee.

Ideally the advisory and broking business should be separate. Many have raised complaint against this as it is a big conflict of interest from customers. Customer gets advice's many a times just for the broker to make money.

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SEBI should look into it and stop the brokers from sending alerts, intraday buy and sell calls, etc. I know this is the truth and I believe in it. If you can back test, then yes go ahead and trade, I have no issues. But trading on the tips of stock brokers and tip sellers is something which is a malpractice which you should stay away from. There are certain companies which say they are SEBI registered tip selling companies. Their business model is something I have explained in upcoming classes of my course.

Want to add to the discussion?

You must see the modus operandi of such companies on how they keep giving tips and survive themselves and loot customers. You can check out Jaspal bhatti video on my YouTube channel showing how people manipulate the market.

Think that you have invested heavily without any risk management recently and the whole market falls. Then obviously you will lose money.

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Can the risk management be applied to safeguard the market risk? The answer is yes. I have explained this in detail in my course on Indian stock market when explaining about futures and options. They are made to do risk management for market risk. When market falls your portfolio comes down and at the same point of time you have to exit as you need fund, you will take a loss n exit. If your portfolio is too heavy you can hedge it to any future and option instrument.

But if you are investing month by month then that will be a good opportunity as market is going to come up. We have always seen it in the history. We have observed this trend in some people that they work in the IT industry and they end up buying all IT companies. At certain point of time one industry can specifically not perform well even if economy is performing well. Then you will lose money. Because the more you are staying in the market, concentrated with just one sector, it will become difficult to revive that sector in one or two years, then you end up losing patience and lose money.

This is called industrial risk. Investing in stock market is investing in business and that business can fail anytime or go bankrupt or if goes into real trouble it can become zero. Any business can get shut anytime; there is no wrong in it. It has happened always and can happen with me and you. So you should realize that one company may fail anytime and if you have invested in just one or two stocks, there are high chances of losing money.

So you have to learn how to diversify your portfolio , so that even if such things happen your portfolio still does better. I have heard still few brokers do it. With the huge money they take from you, they do leverage trading heavily in their own account.