There are some traders and investors who prefer to trade stock options rather than to trade actual stocks or equities. There are several reasons for this including the fact that trading options require a smaller capital outlay, they can reduce risk if traded properly, and stock options have the potential to give relatively high returns when compared to trading equities. However, trading options are highly risky and should not be traded without a thorough understanding of how option trading works, and a full appreciation of the risks involved in this type of trading.

One thing that traders need to appreciate about trading options is that it involves leverage. This simply means that with a relatively small investment, there is the potential to make several multiples of the invested amounts. On the other hand, if the underlying stock moves in the opposite direction of that predicted, there is also the possibility of making significant losses. That is why if you decide to trade stock options, it is best to enter with a specific and defined trading strategy. Trading based on hunches alone is likely to end up being more costly than desired.

Many options traders use chart analysis in their trading strategy. This requires an understanding of candle patterns and what the different formations and chart patterns mean and indicate. An understanding of the difference between put and call options is also required for successful options trading. Traders also should take care in choosing the best trading platform. There are several trading platforms reviews online which traders can read to help them determine which platform may be best for them. Some platforms are more suitable for experienced traders while others are more suited for newer, less experienced traders. Brokers that offer demo accounts may be the best bet for new options traders.