What is Options Trading?
Before we move on with our options broker reviews, it’s only right that we give you a brief rundown of what options trading is and how it works.
Of course, if you’re already an experienced options trader who’s simply looking for a new trading platform, then skip on down to our options
online broker comparison
.
In layman’s terms, options are contracts that give the holder the right to either buy or sell a number of shares for a set price at a prearranged date in the future.
As a buyer, you’re in no way obligated to go through with the trade should you not want to when the date rolls around.
Instead what you can do is sell the actual contract online, thus making a profit without incurring the brokerage fees.
Why Are Options Popular?
Trading with an options online broker is a popular avenue with investors for a number of reasons.
Among the reasons is the low investment for high potential profit margins and the fact that, as a result, options traders tend to be held in high regard by the options brokerage themselves – second only to active traders.
However, that’s not to say that options trading isn’t without its disadvantages and risks.
Below we’ve detailed the most important advantages and disadvantages of trading with an options online broker today.
Trading with an
Options Broker
– Pros and Cons
Advantages
Lower Investment Than Other Trading Stocks
Options are generally favored by investors because they require less capital initially than is required for share trading or anything that requires purchasing the underlying asset.
For example, if you want to get into
buying ETFs in Australia
as a long term investment, you’ll need to stump up a larger amount of cash in advance.
Greater Potential Profits
A word of forewarning here, we’re in no way telling you that options trading is some sure-fire, easy way to get rich quick.
However, what we are informing you is that the lower investment required when trading with an options broker Australia is complimented by higher potential earnings.
This isn’t like buying a lottery ticket with better odds though, it takes a lot of studying and knowledge – basically, you have to know what you’re doing if you want to release this potential.
Buyer’s Flexibility
With an options contract, it’s up to the buyer whether or not it will actually be executed on the premeditated date or not.
Alternatively, as a buyer, you can choose to sell the contract and make a profit if the markets are right.
This is, in fact, what the majority of options traders do – they make their profits from reading and predicting share price movements and selling the contracts, rather than actually executing the buying and selling of shares or stocks.
Another added advantage to this is that no brokerage fees are incurred when selling an options contract.
Disadvantages
Complex for Beginners
We mentioned above in our
online broker review
that, while options trading offers high potential profits for a lower initial investment, it’s not a sure-fire way to make a quick profit.
That’s because options are complicated to understand, even for some intermediate and advanced traders – and getting good and predicting the price movements takes years of practice and attention to detail.
You do, however, have to start somewhere, which is why we’ve provided you with details about the
best online broker for beginners
below.
Time isn’t on your side
Buying an options contract is a bit like buying a car in that the value starts depleting as soon as it leaves the showroom.
You, therefore, need to be quick and have your strategy predetermined before going ahead with your purchase.
There are no exceptions to this rule, even with the best options broker Australia has to offer, there’s no way to sneak around it.
Low liquidity
Just like with
CFD trading
, options contracts are risky because of their general lack of liquidity.
Unlike the above step though there are some exceptions to this rule as popular stocks and indices could potentially have a higher volume.
Also, this
doesn’t really put beginners at a disadvantage
as low liquidity doesn’t really affect low volume traders.
Trading with an
Options Broker Australia
Here in Australia, options are most commonly traded as exchange traded options (ETO), which, as the name suggests, you can basically consider to be the ETFs of the options variety.
As you have most likely already guessed, the most popular place in Australia to trade in options is on the Australian Securities Exchange (ASX), where you can find and buy share options of the biggest and most popular companies in Australia today – the major banks , Woolworths etc. With these ETOs, buyers are allocated 100 shares per contract, which is a bit high for beginner traders – we’d generally recommend going as low as ten. Of course, trading with the best options broker Australia has to offer will give you access to global stock markets.
The
Best Options Broker Australia
We’re not short of options
(pun intended)
here in Australia when it comes to brokerages that offer options contracts.
And while a crowded market offers us choice, which is undoubtedly a good thing, it can get a little confusing – which is where we step in to help you out!
Crowded markets create competition, which means that brokerages are constantly updating and improving their services to outdo each other.
Therefore we have to keep our finger on the pulse when it comes to updating and ranking our
option trading reviews
and the brokers showcased in them.
Below you can find our current ranked list, which detailed the top options broker Australia has to offer you today.
Options trading for beginners
Throughout our options broker reviews, you will have noticed that we often make mention of the fact that options are tricky business for beginners.
However, while some people undoubtedly have a natural talent in some areas, no one is born an expert, are they?
We therefore don’t want to put beginners off entirely, but rather set expectations and advise you to approach with caution.
To be honest, other than long term investments, there isn’t really a beginner-friendly type of trading – using
online forex brokers
isn’t easy at first.
And while bitcoin is the biggest attraction for new traders, cryptocurrency trading definitely ain’t no picnic – check out our
crypto broker review
for more details there.
Our Best Advice When Starting Out
Do your homework, read a book or two, get on the internet and study experienced traders – whatever you need.
These days, many options broker Australia sites even make some of their education and research material open to non-account holders, which you can make use of.
Then there’s the old cliche of practice makes perfect – find a site that offers a free demo account so you can get to grips with options contracts and the trading platform.
What sites offer demo accounts you ask?
That leads us nicely on to our next point …
Finding the
Best Options Broker for Beginners
As with any type of trading platform, a good options online broker for beginners should, first and foremost, be easy to use and easy to follow. Tradingnal trading platforms used to be extremely complex and confusing for new traders to get to grips with, and many advanced traders still prefer such platforms. However 2024, there are more and more apps and sites aimed at beginner retail traders. Therefore they are slick, modern and easy to use. Secondly, we’re looking for a site with a good demo account, as we mentioned above. A demo account that’s free to use can help a user to get to grips and practice trading options contracts with virtual money. One of the best brokerages for demo accounts in Australia in 2024 is IG.
While it is your own learning curve and trading journey, a good beginner brokerage should have some good educational tools, research materials and step-by-step guides to help you make your first buy and trade. As we’ve done here at Wetten.com, they should present you with realistic expectations about the risks involved with options trading, without giving you any false promises.
Another great thing for beginners are
social trading brokers, which allow you to track the traders of your peers and experienced traders. The best social trading platforms even allow you to mirror or copy the moves of other traders. Given the complex nature of options trading for beginners, this is a feature that can come in mighty handy. You can find out the current and up to date list of the best options online broker sites for beginners.
Our
Options Broker Comparison
It’s universally accepted that everyone’s different when it comes to their tastes, needs and wants – and that’s no different when it comes to options trading. There’s no single options online broker that will fit the needs of all traders – what’s good for you, might not be good for someone else. When reviewing all of the options brokerages in Australia, it’s important for us to take different points of view into account.
Finding the Right Broker For You
That’s why here at Wetten.com we have provided multiple expert options broker reviews for you to compare and contrast, with the ultimate goal of finding the one that’s just right for you. In addition to putting the sites through rigorous and fair tests designed to deliver accurate and impartial reviews, we also rate and rank each and every options broker we review based on a number of different categories. From the best online options brokerages for beginners to the best for high volume traders and intermediates – we’ve covered all bases. We’ve also reviewed the best brokerages with which to trade Australian options over the ASX, as well as those which give you better access to the international markets. If you’re looking for more than just options trading from your chosen broker, you can also cross-reference with our other comparisons, such as our guide to
day trading Australia.
How to Trade with an
Options Broker Australia
When it comes to trading options contracts in Australia, there are two main ways in which you can do so – as the “buyer” and as the “writer”. The “buyer” is a pretty self-explanatory term, which refers to the person buying the contract. The “writer”, refers to the party who is selling the contract – dubbed so because they are the ones who write the contract up. When it comes to buying and selling (writing) options, there are two different types of contracts to be aware of – a “call option” and a “put option”. We’ll take a little look at the difference between the two below.
Call Options vs Put Options
With a call option, the buyer is given the choice to buy the shares from the writer at a set price before a premeditated expiry date. A put option is more or less the other way around, where the buyer enters a contract to sell shares to the writer before a set time. The easiest way to summarise it is as follows: as the buyer of a call option, you’re betting on the shares rising in price, as the buyer of a put option you’re betting on the price falling.
Some of you might be wondering how these differ from futures contracts – you can find details about this in our guide to trading with
futures brokers in Australia.
Options Broker Reviews, Prices and Fees
With an options contract, the buyer must pay the premier price plus the agreed share price. For example, let’s say the contracted share price is $100 and the premier is $0.40 with a call option contract on 100 shares, as is the standard when trading ETOs with an options broker Australia site. The buyer will be obliged to pay $100.40 x 100 in total. Therefore, if the share prices above $100.40 by the time the expiry date rolls around, the buyer makes a profit. If it falls below that, the buyer makes a loss – easy maths, right?
Selling Back to the Market = No Broker Fees
When it comes to the brokerage fees with options contracts, they are typically much higher than those found in share trading. For example, if the fee for buying a share on a brokerage site is around $10, then the options trading fee is most likely somewhere between the $30-$40 mark – even with the best options broker Australia has to offer at the moment.
That being said, the most common practice in options trading is for the buyer to sell the options contract back into the market. The result? No broker fees need to be paid at all in this case. When it comes to trading with an options online broker, you only need to pay the brokerage fee if you exercise your right to buy or sell the underlying stock asset.
Where to Trade Options
We’ve covered the
how, but what about the
where? Most of the top trading broker sites in Australia will offer you some form of ability to trade in options contracts, therefore it’s merely a matter of finding the best ones – which is exactly what our experts are here to help you do at Wetten.com Finance. Is there such a thing as an options-only brokerage? Not really. There are, however, brokerages with a particular specialisation in options trading, for which we refer you to our list containing the best options broker Australia has to offer.
Options Trading Strategies
Just as is the case with trades and of any type, having a strategy and blueprint plan before you trade is of vital importance. There are multiple strategies that you can implement when buying and/or selling options contracts, with some being more complex than others. Below we’ll take a look at the most basic strategy when it comes to trading with any options online broker, the covered call.
Covered Call
Sometimes known as a “buy-write”, a covered call basically involves simultaneously beginning the buyer and the writer in a bid to cover potential losses. For example, for every 100 shares of stock that you buy, you would sell a call option on the same stock against it at the same time. The advantage of this is that your short call is covered by your long stock position in the event of a rapid price increase. It’s known as a covered call due to the fact that the long position is covering the short call in this case.
Summarising Our
Options Broker Reviews
If you’d come here not previously knowing or understanding what an options contract was, we hope that we’ve been able to shed some light on the matter at the very least. If you’d come here looking to find out more or further your options trading portfolio, then hopefully we’ve pointed you in the right direction.
Either way, your options trading journey with us here at Wetten.com is only just beginning. We’d now encourage you to go right on ahead and explore our options broker reviews, with the ultimate goal of finding the right brokerage for your options trading needs today! Next up, take a look at our
online stock broker
or
best online brokers in Australia
guides!
Options Broker Australia
FAQ
🏆 Which broker is best for options?
The best way to find out the best broker for options is to head here to
Wetten.com, where we’ve ranked the best broker based on what they offer to potential options traders. We’ve ranked and categorised each and every site we’ve reviewed based on a number of criteria – therefore everyone from beginner to experienced trader levels is covered.
🇦🇺 Where can I trade options in Australia?
There are multiple sites on which you can trade options here in Australia, the majority of which also offer other trading capabilities. The amount of competition on the market today means that these sites are consistently being updated and upgraded in an attempt to attract new options traders. You can therefore find a list of the best options trading sites in Australia right here that’s always up to date.
❓ How do I buy options on the ASX?
Buying options on the ASX is slightly different from doing so on other global stock exchanges, such as Wall Street and the London Stock exchange. If you’ve never done an options contract trade before in Australia, it can seem quite confusing at first. That’s why we’ve put together a step by step guide to options trading with ASX, which you can find contained within our
ASX Review
here at Wetten.com Finance Australia.
🗺️ Where can I practice options trading?
Many brokerages out there today offer you the ability to practice options trading in Australia. If you’re already signed up to a brokerage, check today to see if they offer you the ability to buy or write options contracts. Looking for a new
broker for options trading? Look no further than the
broker comparison
here at Wetten.com.
✅ What is a good options broker for beginners?
Options trading
is tricky for beginners but new traders have to start somewhere, which is why you can find the best place to start off your options trading career in the
beginner’s broker guide
right here.
