How to Trade Options in Canada

How to Trade Options in Canada
••• stocks and shares image by Andrew Brown from

Options are financial instruments that give you the right but not the obligation to buy or sell the underlying asset. For example, if the underlying asset is a stock or a currency, an option on these assets will allow you to buy that stock or currency.

Stocks are traded for basically for two reasons: to hedge risks or to speculate. Whatever your motivation, the way to buy and sell them in Canada is the same.

Determine how much money you want to set aside to trade options. Brokers have a minimum amount you need to deposit in order to start trading with them--$1,000 or $2,000 is usually enough.

Remember that trading options, like trading any other derivatives, involves a significant degree of risk as prices can fluctuate greatly and move in a random and unpredictable fashion.

Find a broker that trades options. The best broker will trade a wide range of options (the more options that are available, the better), will have low commission fees and a good reputation. Make sure your broker is well-established and has a lot of clients. You can check the broker's "legitimacy" with its regulator. In Canada every province and territory has its own local securities regulator. In Ontario, for example, the local regulator is the Ontario Securities Commission.

Open a demo account with the broker you chose to deal with and start educating yourself in options trading. A demo account is just like a real account but the money is not real. Most brokers allow anyone to open a demo account to check out brokers' trading platforms and learn how to trade by trial-and-error.

It is a good idea to read books about trading options, preferably written by star options traders. You can also get up-to-date information about options and their price movements from business information agencies such as Reuters or Bloomberg.

Open a live account and start trading. Remember about the high risks involved and be cautious. Trade only those options which you tried on a demo account and whose price movements you understand.