How to Sign up to Trade Options with a Trading Platform
2021-04-26 | Allison Ostrander
In this post:
- What is one of the easiest trading platforms to use and teach to new traders?
- What is WROS?
- How many owners can an account have?
One of the most frequent, first questions I get when teaching others how to trade options is:
“How do I sign up for a Brokerage Account?”
Or more specifically:
“What type of account do I need to trade option spreads?”
Signing up for a trading account can seem like a simple thing to do, but oftentimes traders first signing up for an options account can find themselves thrown off by the language and questions asked. I know when I first signed up for my account, the questions threw me for a loop. It was not about my personal thoughts about trading, but rather about specific answers most trading platforms are looking for to help control their risk.
I have been with many trading platforms over the years, quite a few I was with before they got swallowed up by others like OptionHouse to E*Trade, and some that I have stuck with from the start. Most of the questions are shared across trading platforms, though some like to be a bit more sophisticated in their language. I think one of the easiest trading platforms to use and teach to new traders is tastyworks, and their sign up process is some of the simplest. So to keep in the spirit of all things simpler here at Simpler Trading, and to help those with questions about the sign up process, I am going to take you step-by-step and help clear some of the confusion, with pictures included.
The first step is to determine what kind of account you’re opening, or more specifically, who will have access to your trading account.
Out of the Individual Account, you will have three different options to choose from, and some can limit the ability of what you might be able to trade (like option spreads and other strategies). This is usually the first hurdle some options traders run into when opening their first account, so let’s break it down.
The difference between this and a margin account is in a margin account, you are telling the brokerage accounts that you have assets and more money at hand than what is just visible in the account. This gives the trading platforms “peace of mind” about your account getting potentially assigned shares, because you are telling them that there is more that you have than just what is in your trading account.
The bottom line for this portion is that if you want flexibility to trade any type of option spread from verticals to short options, then you will want to lean towards a Margin Account. For this purpose, we will continue here with “choosing” margin and continue with the sign up process.
Once you choose what type of account you want to open, you are then asked all the usual, personal questions: Name, Residency, Citizenship and all the other standard information you use when signing up for a bank account or credit card (and, no, your credit is not checked when opening a trading account).
The next step in the process is to answer some Affiliation Questions. Most of this will not apply to the average trader, and if it does, you were probably already aware of it before starting this process. Below are the questions that most brokerage platforms will ask you:
As I mentioned earlier, for most traders the answer is no to this question, but if you are hesitant at all, always feel free to call into the brokerage account company you are signing up with and I am sure someone would be happy to help address any specific questions.
Once you get through these questions you go back to some of the more basic information you may fill out at a doctor’s office like Trusted Contact. Now it’s time for the next “hard part”, another struggle area for newer traders who might get confused by the language. So let’s break down what the Brokerage platforms are really asking by these questions in this portion of the signup.
In tastyworks, they too like to make things simple by asking what you would like to do in your trading account. If you want to trade option spreads or naked options, then “The Works” is probably the best fit for you, as it is the most flexible account to trade out of.
If you are brand new to options trading and are still not even sure what a Call or Put is, you may want to pause here and start to consider some self teaching to get familiar with the subject you are attempting to do. Once you know you have more than “limited” knowledge, you can come back to filling out this part of the form. One great way I found to further my knowledge of trading without using real money was to first start off paper trading. This allowed me to grow my knowledge into that expert level without putting myself (or potentially the brokerage company) at risk with my real money. When I got comfortable with the strategies I was trading, I then was able to jump into real money. Keep in mind, the Brokerage Company wants the least amount of Risk on their end, so if you have an understanding of trading option spreads, they will be more likely to grant you that access.
The next place that new traders can trip up at is the “Trading Objective” question. I know for me, I struggled with this part when first signing up because my definition of how to achieve my “trading objective” was different than how the Brokerage platform defines their terms. Let’s break down each one to understand how the Brokerage platform is defining these answers. The way you answer this could determine whether or not your account will be able to trade option spreads or not.
For them, “Speculation” is options trading. There is a specific time frame that you are looking for a move to occur by. Most options traders are not sitting and holding trades for years at a time. Overall, trading options, and specifically spreads, to brokerage accounts means that you as a trader are looking for the “hope of a higher-than-average gain.”
The next answer that can be given is “Growth.” When the Brokerage Account mentions this term, it is usually focused on the bigger picture view and the appreciation of values in the account over a longer period of time. So when this selection is made, in regards to options it is typically focused on Long Call or Long Put plays, and can sometimes limit the option strategies that are available to trade.
After “Growth” is “Income.” “Income” is focused more on short term growth that covers expenses rather than the bigger picture view. As an options trader, you may think this is the pick for you, but once again we need to go off how the Brokerage Company views “Income”, rather than what we know we can do as options traders. The Brokerage Company typically views “Income” accounts to grow through bonds and dividends and therefore limit your ability to trade multiple option strategies.
The last choice is “Capital Preservation”, which I think is something every trader can agree on. No one wants to lose the money they are about to invest. This is usually viewed as the account taking the least amount of risk. Keeping in mind what was stated earlier, Brokerage Accounts view options trading, especially the ability to trade spreads, as very risky, so you can make an educated guess on whether or not you will be able to trade spreads in this account.
This is usually one of the big hurdles traders get stuck on because they are trying to use their definition versus what the Brokerage Account views as the “correct” definition of these account types.
If you are opening a Margin Account, the Brokerage Company will also want to know what you have in regards to Income and Net Worth (both Liquid and not) so they can determine how much you will be allowed to have in “margin” to trade with.
Finally, after the “hard part is over” it is back to the basic routine of securing your account and confirming your identity. Oftentimes you will confirm your email address, as well as maybe showing a document that shows you live at the address that you claim to live at, like a bill.
Now, everything is complete! Grab that glass of wine and relax, and you will know soon (sometimes immediately and sometimes a couple business days later) if you were accepted for that account type and therefore are able to trade option spreads.
For those who are interested in signing up for a Tastyworks account, want to expand their trading education or tools, and have never used a Simpler Trading link to do so, you can sign up for a new account using this link here: simplertrading.com/AOTW
If you use this link and fund a TW account with at least $2,000, you can receive a $500 rebate to use in the Simpler Trading Store towards a class or indicator. This is a great way to gain that knowledge in options trading (or whatever trading you are interested in) while opening your trading account at the same time.
Hopefully this blog post gave you a bit more insight into how to sign up for a trading account that allows you to trade option spreads as well as decipher some of the language used by the Brokerage Platforms.
As always, may the trade be with you!
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