Can I trade options with Robinhood?

 Options Trading on Robinhood: Everything You Need to Know

 

Are you new to the world of options trading and not sure where to start? Robinhood is here to help with its options trading platform, which offers both stocks and options trading to investors of all skill levels.

Read on to find out more about Robinhood’s options trading platform and how it works, along with information on how you can trade options on Robinhood!

 

How do options work?

An option is a contract that gives you, or an investor you know, certain rights. Here’s how it works: If you own an option, and if a stock’s market price rises above a set price at some point before it expires (called its expiration date), then that right becomes valuable.

 That value can be used in two ways – either you sell your option to someone else who is looking for exposure to that particular stock, or you exercise your right yourself and buy 100 shares of that stock at the discounted rate.

 In either case, once your right has been exercised, any gain on top of what was paid for it is pure profit. (To learn more about trading options basics like these, check out our beginner's guide).

 

Which markets can you trade options in?

Like many brokerages, Robinhood only lets you trade certain options in certain markets. Options trading is currently available for individual stocks and ETPs (exchange-traded products) listed on U.S. exchanges.

Options aren’t available for stocks traded on international exchanges, currency pairs, ETFs, bonds, futures contracts, or real estate investment trusts (REITs).

However, you can trade straddles and strangles—options that let you make bets both long and short—on most major U.S.-listed equities (more information here).

 

What are your trading fees like?

The trading fee for options trades is $0.50 per contract, which is in line with industry averages. If you plan to trade only a few times per month, then Robinhood's commission is a good deal compared to its competitors like E-Trade and Scottrade.

However, if you make frequent trades, these costs will add up over time. Plus, you'll need an average of $2,000 in your account just to cover commissions. You can read more about how much it costs to buy and sell stocks on our site here.

 

What are the platform features & app reviews like?

Although Robinhood doesn’t have a ton of features compared to a full-fledged brokerage account, it’s best suited for beginner and intermediate traders who want to get started trading with little money.

 The platform has recently been updated with some new features like larger watchlists and a place for you to display your achievements. There’s also an investment checkup feature that helps you monitor your progress over time.

 Additionally, there are some valuable Learn sections that will walk you through how options work and how margin trading works (which is important). While all these things are nice, they pale in comparison to more advanced platforms like TD Ameritrade or E*TRADE when it comes to investing tools and charting/analysis tools.

 

How is Options Trading Different Than Buying Stocks?

The biggest difference between trading options and buying stocks is leverage. When you buy a stock, you own a piece of a company that represents real assets with real value. With options, it’s almost like gambling because you’re speculating—on one or multiple stocks—that a particular price will rise or fall before your option expires

. Options are also much cheaper than buying stocks; they’re so cheap, in fact, that most investors who trade them focus primarily on how much money they can make instead of how accurate their predictions are.

 

Getting Started With Your First Trade

After you’ve got your stock and options selected, you’ll be able to place your trade by selecting an order type.

 In our example trade, we’ll select Market. The rest of your order settings are optional—you can choose from a variety of market orders and limit orders (which help you avoid a big price swing) as well as specify whether or not you want to use stop losses and what price threshold they should trigger at.

If your goal is simple long-term investing (as opposed to short-term trading), leave these settings alone! If you do plan on day trading in addition to long-term investing, however, Robinhood does have additional features that may help with active management.

 

The most important elements of your first trades

Once you have an account with a broker, it’s time to make your first trade. If you already know what you want to invest in, then great! Skip ahead and find out how much it will cost. If not, you’ll need to figure out which stocks are right for your portfolio (see our stock-picking tips).

Most brokers will also allow investors to buy individual stocks as well as options. So let’s talk about those next. Options are contracts that give you two main ways of making money. Call options give buyers the right—but not the obligation—to buy an underlying asset at a specific price (called the strike price) within a certain period of time.

 

Strategies for getting started with option trading

The way that options trading works may seem complicated at first, but there are ways for you to get started with little or no. If you’re interested in exploring options trading, be sure you have a high-quality education before you start using real money.

 For example, consider visiting your local library and reading several books about options trading strategies and terms, such as The Options Playbook by Tim Knight and Option Spread Strategies by Van K.

Tharp Mastering Options by Mark Wolfinger or another option-focused text of your choice Understanding complex investment strategy takes time and practice—there’s nothing wrong with starting small! To begin learning how to trade options successfully, try entering trades that involve just a few shares of stock.

Account Minimums and Account Types

Currently, Robinhood requires $2,000 in assets to open an account. This is a new threshold that came into effect in early 2018. Prior to that time, opening an account with them only required $1,000 in assets.

 Some users have had success petitioning for an exception if their initial deposit was below $2,000 but they are aware of a Robinhood policy change. Users who would like to attempt an exception should contact customer support and ask about trading options with less than $2,000 in assets.

It can’t hurt! Note: The link above takes you directly to their contact page where you can reach them by phone or email. Visit their website here.

 

Conclusion

So, you know everything you need to know about options trading, and more. But what do you think? Is it a good idea? If so, I’d highly recommend giving it a try!

Options trading can seem intimidating at first, but once you get your feet wet and start making trades with a real account, it quickly becomes fun and exciting. We hope that if you give options trading a try (and are successful), we’ll be seeing your posts around here soon too!