.. osal to my lawyer? 14. Would you give me the names of you principals and officers? 15. Can you provide references? Experience has shown that the dishonest sales people usually resist or are not prepared for this type of interrogation. Their marks are impulsive buyers who make entirely emotional decisions.
The answers you get are vague and evasive. For example, Question: How much are commissions? Response: Theyre never a problem. Question: If I have a complaint, what can I do? Response: Dont even worry about that, Ill take care of you personally. By gathering a lot of information and taking some time making your decision, you can protect yourself from the majority of swindlers – but not all. The very best mimic legitimate sale operations, but must can be uncovered if you do your homework and control your emotions. Another simple procedure you can do to avoid scam artists is call the NASD or the NFA Information Centers and ask these questions: 1. Give the name of the person youve talked with and ask if he/she is registered.
2. With which firm? 3. How long has he/she been registered? 4. Has the NASD or NFA taken any public disciplinary action against him/her? 5. Has he/she been registered with any firm that has been cited for compliance problems? 6.
Is there anything else you can tell me about him/her, since Im considering investing with him/her? Once you decide who you think the right broker is, you make your selection by completing the account papers. Your broker should ask you to read them carefully and fill them out in your own handwriting. The reason for you to do it in your own had is so the broker is assured that you saw them and had the opportunity to read them. The broker will ask you if you understand them and have any questions. The account papers describe the risks you are assuming.
You have no one t blame but yourself if you ignore them or sign them with out reading them carefully. If the broker offers to fill them out for you (Ill just get them typed up for you), consider this a warning signal. The easier the broker makes it for you to fill out the account paper, the less likely you are to study them. They are worth the time and effort it takes to understand what you are signing because they define the risk you face in great detail. Poor communications is another miscue that often occurs between clients and their brokers. Its important that you and your broker set up some guidelines.
Here are some to use to sidestep this problem. Be sure to cover them all before trading begins. 1. Time of day you are most easily accessible. 2.
Whether you are to call in or whether you broker will call you. 3. What steps will be taken if you cant be contacted, i.e., should you broker put stops in the market, close out positions after 4, 8, 12, or 24 hours of not being in contact, etc. 4. What steps will be taken if the account goes into debit? do you Plan to wire money into the account? Transfer from another account? Over-night a check? 5.
How trading emergencies will be handled. 6. What hours you are available and who to contact when you are not available. 7. Normal office hours, plus any evening hours your broker is available.
8. You may need to provide your broker with your home or office phone number, if thats the only way for him to stay in touch with you. 9. Your broker needs to know who to contact if you are not always near a phone. This person should be able to reach you quickly.
For example, farm wives are often in radio contact with their husbands during planting and harvesting. Many business people carry cellular phones when out of their offices. 10. You need to make provisions for unusual situations, such as when you are traveling r taking a vacation. The point is simply this: It is easy to avoid the mistake of losing contact with hour broker.
If a situation arises where you are going to be out of touch, either put stops in the market, close out the positions or even your account. Do not risk trading when you cannot be reached quickly, if the market situation warrants it. If your broker doesnt mention this, be sure you do. Another common misfire made by new option traders is jumping the gun. Many traders come to the conclusion there is no reason to hesitate since the risk of buying a put or call can be predetermined.
They reason: The option only costs $900, or $1,000 including fees and commissions. I can afford that. Go ahead and buy it. First, if the option expires worthless, you lose 100% of your investment. Think of it in those terms, rather than a dollar amount you can stand to lose. When you think of it as 100%, you start trying to figure how to salvage some of it.
What about cutting the loss to 50%? or 20%? Its this kind of thinking that leads to the use of placing trailing stops behind your positions. The opposite – waiting to long to trade – can be debilitating. Some people wait until they learn everything there is to know about options trading before they place their first trade. Of course, this never happens. On the other hand, if you have the gut feeling that options may not be for you, dont fight it. You dont have to trade. Trading stock and futures options is highly speculative, not suited for every investor. Never let a broker or friend bully of dare you into trading.
Hang up on any broker who challenges like this: if you dont have the guts for this trade, you better get a testosterone check! If you have to ask your husband for permission to trade, youre not a 1990s woman! Your motivation for placing an options trade should be profit based on a sound, unemotional evaluation of the strategy, the market, and the trades risk-to-reward ratio. A Variation of these last scenarios is the purchasing of an option at the wrong strike price of month because you dont have enough money n your account to buy the right one. For example, lets say you are considering buying a December crude oil call. The futures price is $20.54 per barrel and youre looking at the at $20.00 strike price. Its at $0.74 or $740.00 (1000 bbl x $0.74). Since you only have $500.00 in trading equity, you settle on a $21.00 per barrel strike price.
Its at $0.16 or $160.00 plus commission and fees. This is a big change, from approximately 50 cents in-the-money to 50 cents out. The in-the- money call had $500.00 of intrinsic value and the rest was for time to expiration. Since the out-of-the- money option has less time value than the key error is comprising your strategy to accommodate your wallet. Also, you must resist the suggestion of your broker to down trade in these circumstances.
Brokers normally work on commissions and are continuously looking for ways to sell a trade. Youre usually better off searching for a new trade that meets all your criteria and also is affordable – or standing aside the market. Standing aside is a totally acceptable stance. Inexperienced trader often make the mistake of overtrading, feeling they should always have something going in order to be successful. The pros often sit on the bench when the game is not going their way or they are not sure which way it is headed.
This leads to the next subject, which is the proper way to get into the markets in the first place.