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Best ways to paper trade options?

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J.Baker

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31 October 2008
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Hi guys,

I want to do a bit of options trading. Where is the best place to start and how should I do it? ie is there a sim account I can open without having to open a money account or should I just write it on paper, good books to read? etc etc..

Thanks..
 
Yeah absolutely. OptionsXpress have everything to let you practice this. And to open an account is very easy and you don't need a cent. I found them of much use. Other than that, the only advice i can give you if you will paper trade is to throw the rubber in the bin and treat it like its real money.
 

  1. Don't ever ever think you can get the price of the last sale. (a popular delusion)
  2. Don't kid yourself that you can split the bid and ask
  3. Buy the ask and sell the bid in real time... you might get a fair idea.
 
Paper trading is great but it is very far from reality, especially with Oz options.

  • Liquidity in real trading may be so much less than you expect.
  • You will probably transact at prices far worse than fair value, especially when market makers are not quoting.
  • You will probably be more gung-ho with paper trading, and more chicken with real money.
  • You will find the real market to be vicious and unforgiving if you make a mistake eg. placing incorrect orders, etc.
IMO, you will learn a lot more using real money but playing with small trades.

Interactive Brokers offer a paper trading account, but for paying customers only.
 
Hi J.Baker.

Tend to agree with Fox and WayneL here, but i'll go a step further and say paper trading aussie options is a waste of time (perhaps even a bad idea). The only way to learn is to start out small after getting a good grasp of concepts.

But in saying that i've never paper traded so who am i to say.
 
yep. waste. Will give you a false impression thats also counter productive. Like the others said, start small & take your time. The last thing you want to do is go in the red from the start & have to climb your way back. Been there, done that. not fun.
 
Hi guys, thanks for the input!

So what does "starting small entail" Buying 1000 $3-6 stock and making a call option or something?

Where would I get the best info on how to trade options? I have been reading the lesson on optionsXpress, tho its on how to trade US options. Doesnt this matter?
 

Hi J.Baker,

Just so we know were you're at, are you already experienced with the markets and already have a portfolio or are you still pretty green ?
 
Still quite green. I've bought an held a few stocks, "day traded" a few times and I spent 12months trading futures with Ti. Which I've recently put on hold because of the 1:30am starts due to daylight savings in both countrys... Umm, I'm doing okish. I've not lost money on anything yet but at the same time I'm not making a great deal. Around 12% profit over 1.5years. Better than the banks but I'd really like more experience if nothing else..
 
jono1887 said:
How do you work out/factor in liquidity when paper trading?
Click to expand...

I've never paper traded options so i can't help you much but as WayneL pointed out in post #3, hit the bid/ask in your pretend account.
 

Hi J.Baker,

Just trying to work out if you're already an existing stockholder, buying stock for the sake of writing calls isn't really the way to go (IMO). If you already own blue chips writing call/call spreads may possibly be the way to start learning/practicing.

It's a hard one suggesting where to start, i personally came from a background of long term investor, started with covered calls (thought i found the holy grail till i copped some unwanted assignments), from there spreads and index options, so for me covered calls on low cost base stock was a safe foundation, i wouldn't know where to start assuming i didn't have an investor background.

Possibly XJO options on a cash account, limited risk only.
 

Starting small means whatever it means to you. From a money management argument, I would not recommend starting an options account with less than $10k.

I would only stick to trading US options. Much better liquidity and far tighter spreads. The Aussie options market is about as exciting as watching paint dry.
 
wayneL said:
  1. Don't ever ever think you can get the price of the last sale. (a popular delusion)
  2. Don't kid yourself that you can split the bid and ask
  3. Buy the ask and sell the bid in real time... you might get a fair idea.
Click to expand...

Very timely thread for me. I've had an IB account for a while, but just activated the paper trading account today. I opened a few positions, it only filled the hypothetical order when I was just about at the bid/ask.
 
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