Why Do 9 Out Of 10 Traders Lose Money In Options Trading?
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Most people suffer losses in option trading and the majority of them are retail investors. Today we will know the reasons behind this through this article. So let us know in detail what is the reason why retail investors are not successful in options trading.
lacking knowledge
Most of the people who make losses in options trading are those who lack knowledge. Newcomers enter the stock market as if there is a money tree here and without acquiring knowledge they will become rich overnight. If you trade without learning options trading, you will be ranked 9 out of 10. In option trading, you need to know about the option chain, option Greeks, option expiry, open interest, and choosing the right strike price. You will have to learn all this, only then you will be able to do something in options trading.
Trading based on tips and calls
It has often been seen that people try to make money based on tips and calls from the stock market without putting in any hard work. For your information, let us tell you that if you are also thinking of earning money by relying on tips, then no one can stop you from falling into the category of loss. If those giving tips had so much knowledge of the market, they would have earned money from their trading and knowledge instead of giving tips. Tips is just a business of calls and nothing else. You have to stay away from this thing, increase your knowledge, and do trading yourself.
lack of patience
People want an instant money-making machine. People learn trading but due to a lack of patience, they end up incurring losses. Premiums work in options trading. And if you lack patience then you will only suffer losses in option trading. After taking the trade, traders hurriedly close their positions and after that, the market starts moving in their direction. There is a lot of movement inside the option, if you do not keep patience then you will not be able to make money.
working in otm
Due to less money, people work in OTM strike price. OTMs are available cheaply and people end up incurring losses in the pursuit of cheapness. There is only time value in OTM and even if the price starts moving in your direction, it will not give you much benefit only because of time value. Therefore, you should not take the wrong strike price in the name of cheapness. Choosing the wrong strike price in options trading means wasting your money intentionally. However, there is also a strategy to work in OTM. If OTM is used in the right place then it multiplies your money.
Not knowing about time decay
This is the biggest reason why most people suffer losses in options trading due to time decay. When the market is in a range, the option buyer suffers a loss due to time decay. People who buy options without knowledge often fall into the clutches of time decay. For those who buy options in a range-bound market, their premium gradually disappears due to time decay. You need to understand option Greeks. You can make money in option buying only with option tricks and the right strategy.
be too greedy
Some traders make losses in options trading due to excessive greed. Too much greed means not exiting the trade even after reaching the target. In option trading, you have to be completely loyal to your target and stop loss. Due to time delay in option trading, even a profitable trade turns into a loss. Therefore, greed is also one of the reasons why people do not succeed in option trading.
Wrong strategy and risk-reward
It is important to have the right strategy in option trading. Newbies try to take a trade somewhere and when the price starts moving in their opposite direction, they get nervous and either exit the trade or start holding it. Traders hold their losses but do not wait for profits. If you do not take care of risk-reward, you will not be able to make money.
It is important to have the right stop loss and target in your trading strategy. Accordingly, you have to enter and exit the trade. Newcomers do not know the correct trading strategy and where to enter, where to keep the stop loss, and where to set the target and end up incurring losses. It would be better if you trade through a strategy only.
