options trading business plan

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Getting started with options

Key takeaways

• There are some key steps that can help you make your first options trade.
• Learning several key options terms makes trading options easier.
• Build a plan and know what tools can help your strategy.

If you are new to options trading, it can be both exciting and nerve wracking. Options are a little more complex than traditional investments (such as stocks), and they can involve more risk. But once you understand how to trade options, they can help you implement your strategy, generate income, manage risk, and more.

So if you are approved to trade options, what’s the next step?

Learning the language of options

Before making your first options trade, it can help to be comfortable with some of the lingo and the unique characteristics of options. For example, you’ll want to understand:

• What options are. They are contracts that let you buy or sell an underlying asset (like a stock or ETF). For example, the buyer of an Apple call has the right, but not the obligation, to buy Apple’s stock. Each options contract typically controls 100 shares.
• The difference between calls and puts. The buyer of a call option has the right (but not the obligation) to buy an underlying asset before the contract expires, and the buyer of a put option has the right (but not the obligation) to sell an underlying asset before the contract expire.
• Buying vs. selling options. When you buy options , you use money at the outset of the trade. When you sell options , you generate money at the outset of the trade. There are some more complex strategies that involve both buying and selling options at the same time.

Understanding these foundational aspects of options can help you build a stronger options trading plan. You might even familiarize yourself with some frequently asked options questions . These include: What does it mean to exercise an option, what factors determine an options contract’s price, and what are options Greeks ?

Apply to trade options

How to trade options in 5 steps.

Ok, once you have a handle on some basic options terms, you can begin building a plan that makes sense for you. While there’s no exact process that you must follow, here’s a general 5-step plan that you could consider.

Step 1. Figure out how much risk you are willing to take

Deciding how much money you are comfortable putting at risk trading options can help you build a strategy that’s right for you. This might be a specific dollar amount or percentage of your investible funds. Remember that each options contract typically controls 100 shares (there are other, less popular types of options contracts, including nano and minis, that control a different number of shares), so be sure to consider this in your risk evaluation.

An aspect of this decision is how an options trade might impact the rest of your portfolio (e.g., are you taking on additional risk with an options trade or managing risk for some of your other investments). You’ll also want to decide which account you want to use for your options trade (e.g., individual account, IRA), as certain accounts may restrict some types of options strategies.

Step 2. Identify what you want to trade

Next, you need an outlook on a specific investment. There are a couple of key decisions to make here: What direction you think an investment may go (e.g., you think a specific stock will go up in value) and over what timeframe you think the investment could move in this direction (e.g., before the company’s next earnings announcement in a couple of months). 

There are a variety of resources that can help you generate ideas, including market commentary, investing ideas, and screeners. You can make your own assessment of which direction an investment might go using company financial statements, charts, and other research tools. Many factors can impact how a stock performs. In particular, earnings reports and dividends are critical factors that can influence an underlying stock of an options contract.

Step 3. Pick a strategy

Once you know your outlook, you could then explore strategies. Important decisions for selecting your strategy include picking the expiration date and strike price . Unlike stocks, an options contract lasts a predetermined amount of time until its expiration date. The strike price is the price the underlying will transact upon exercise/assignment. For call options, the strike price is the price at which an underlying stock can be bought. For put options, the strike price is the price at which shares can be sold.

You can find options to trade in the options chain , where you can see all the calls and puts available for a specific stock, plus the expiration dates and strike prices.

What are some specific strategies that you can utilize? If you want to use options to implement a bullish outlook (i.e., you think an investment is likely to increase in price), you could buy call options or you could help limit your risk, but also your gain, with a more advanced strategy called a bull spread . If you want to implement a bearish outlook (i.e., you think an investment is likely to decrease in price), you could buy put options or you could help limit your risk, but also your gain, with a more advanced strategy called a b ear spread .

There are a wide range of options strategies that you can explore to implement your strategy, including those that depend on volatility —such as straddles and strangles.

Step 4. Understand how volatility and probability influence options

It can sometimes be difficult to pick the right options contract for your strategy. Moreover, during the life of an options contract, circumstances can change, impacting the probability of success. Factors like changes in volatility can have a significant impact, so it can be helpful to set up and manage your trade with these factors in mind.

Helpful tools that you can use to help find the right contract for your objectives are the Options Trade Builder and Profit/Loss Calculator . These tools allow you to see what a trade might look like, and to visualize the risk and reward based on how time, volatility, and changes in the underlying asset’s price can affect an option's value.

Step 5. Have an exit plan

An important part of building your plan is having a system in place to monitor your options position as well as having an exit strategy. Because options contracts expire, this may require you to make some decisions along the way.

At times throughout the life of an options contract, you’ll want to ensure your initial outlook still aligns with the trade. You can decide whether to hold (take no action), roll (close out your current position to enter a new one with different characteristics), or close the trade.

Keep learning

These steps may help you go from being approved to trade options to actually placing your options trade. There are many different types of options strategies and nuances that can only be discovered with experience. But with time, you can learn what you need to optimize your options trading strategy.

Place an options trade

Enter a single- or multi-leg options trade.

More to explore

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Crafting a Winning Options Trading Plan: A Guide to Strategy, Risk Management, and Success

For both novice and experienced traders alike, creating a comprehensive and well-structured options trading plan is critical in achieving consistent success in the financial markets. A robust trading plan serves as a blueprint that outlines your goals, strategies, risk management techniques, and trading discipline, enabling you to navigate the complex world of options trading with confidence and clarity. InsideOptions is dedicated to helping traders craft winning options trading plans tailored to their unique financial objectives, trading style, and risk tolerance, equipping you with the knowledge and tools necessary to excel in the options market.

An effective options trading plan addresses multiple aspects of your trading journey, including the identification of opportunities, selection of appropriate strategies, implementation of risk management principles, and adherence to disciplined trading habits. By crafting a robust trading plan that aligns with your individual goals and preferences, you can minimize the influence of emotions and cognitive biases, ensuring more objective decision-making and a higher probability of success in the options market.

InsideOptions is committed to providing the resources, guidance, and expertise necessary to help you develop and refine your options trading plan. Our goal is to empower you with the insights, best practices, and inspiration to create a trading plan that enables you to achieve your financial aspirations and unlock long-lasting success in the world of options trading.

Embark on the journey to crafting a winning options trading plan with InsideOptions as your trusted partner. Discover the keys to strategy selection, effective risk management, and trading discipline, and harness the power of a comprehensive trading plan to propel your success in the options market.

1. Defining Your Objectives and Trading Style

The foundation of your options trading plan begins with a clear definition of your financial objectives and preferred trading style:

– Long-Term vs. Short-Term Goals: Identify whether your primary focus is on long-term growth, short-term gains, or a combination of both.

– Trading Style: Determine whether you prefer an aggressive, conservative, or balanced approach to options trading, depending on your risk tolerance and desired level of involvement.

– Performance Metrics: Establish measurable criteria for success, such as annual return on investment, win/loss ratio, or Sharpe ratio, to gauge your progress and enhance accountability.

2. Selecting Appropriate Strategies

Your options trading plan should incorporate a range of strategies tailored to various market conditions, trading objectives, and risk profiles:

– Market Outlook: Identify the market conditions and scenarios in which your chosen strategies are likely to be most effective, such as bullish, bearish, or range-bound.

– Strategy Selection: Choose from a diverse range of strategies, including calls, puts, spreads, and more advanced techniques, based on your objectives, risk tolerance, and market outlook.

– Trade Evaluation: Develop a disciplined approach to trade selection, ensuring that potential trades align with your trading plan and fulfill predefined criteria.

3. Implementing Risk Management Principles

Incorporating robust risk management principles is essential for long-term success and preserving your trading capital:

– Position Sizing: Determine the appropriate position sizes for each trade based on your portfolio value, risk tolerance, and probability of success.

– Stop-Loss Orders: Utilize stop-loss orders as a means to define the maximum risk you are willing to accept on each trade, protecting your capital from significant drawdowns.

– Risk Diversification: Aim to diversify the risk associated with your options trades by utilizing different strategies, expiration dates, and underlying assets to reduce correlation in your portfolio.

4. Maintaining Trading Discipline and Adherence to Your Plan

Consistent success in options trading requires discipline and a steadfast commitment to your trading plan:

– Entry and Exit Rules: Establish clear, objective entry and exit rules for each strategy in your trading plan, which will guide your decision-making and minimize impulsive actions.

– Routine Maintenance and Adjustments: Regularly review and analyze your trading performance, ensuring that your strategies and risk management techniques remain effective in changing market conditions.

– Emotional Management: Develop tactics for managing emotions and stress, such as mindfulness practices, to minimize their influence on your decision-making process.

Conclusion:

A well-structured options trading plan is a critical component of achieving and maintaining success in the options market. By defining your objectives, selecting appropriate strategies, implementing robust risk management principles, and maintaining trading discipline, you can unlock the potential for lasting success in your options trading endeavors.

InsideOptions is dedicated to providing expert guidance, resources, and tools to help you excel in crafting a winning options trading plan. With our extensive insights and support, you can create a personalized plan that aligns with your unique financial goals, risk tolerance, and trading style. Embrace the power of a comprehensive options trading plan and forge the path to lasting success in the options market with InsideOptions as your trusted partner. Contact us today to learn more about the best option trading strategy .

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Please note that the following disclaimer applies to the InsideOptions LLC and the SPX Program. The information provided on this platform is for educational and informational purposes only, and should not be considered as financial advice. InsideOptions LLC and the SPX Program do not offer or provide any investment advice, recommendations, or opinions regarding the suitability, value, or profitability of any particular investment or trading strategy. Any investment decision made based on the information provided on this platform is at your own risk. You should always consult with a licensed financial advisor or professional before making any investment decisions. InsideOptions LLC and the SPX Program do not guarantee the accuracy or completeness of any information or analysis provided on this platform. The information provided on this platform is subject to change without notice, and may not be current or up-to-date. Investing in options trading involves significant risk, and you may lose all of your investment. Past performance is not indicative of future results. InsideOptions LLC and the SPX Program are not responsible for any losses or damages incurred as a result of your use of the information provided on this platform. By accessing this platform, you agree to hold InsideOptions LLC and the SPX Program harmless from any liability or loss arising from your use of the information provided on this platform.

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Trading as a Business: The Ultimate Guide

Options trading 101 - the ultimate beginners guide to options.

Download The 12,000 Word Guide

There is one thing in common about successful traders, they manage their trading as a business.

This requires a level of seriousness and discipline that the average retail trader does not have.

This article will outline the importance of setting goals, understanding costs, and evaluating performance.

How Much Money Do I Need to Start Trading for A Living?

What are realistic levels of returns.

• What is My Realistic Level of Return?
• Picking The Right Brokerage
• Having The Right Data
• Miscellaneous Costs And Poor Execution

Know Your Competition

Who is the competition.

• If I Don’t Have A Trading Business, What Would I Do Instead?

Your Business May Fail

• Your Business May Succeed

Does It Make Sense to Trade?

When trading as a business there is one key metric we need to consider:

(Total Capital x Expected Returns) – Costs > Alternative Work Net Income

One of the most common questions people have is the minimum amount of capital one needs to start trading for a living. It is easy to open brokerages accounts with as little as a few hundred dollars.

Despite this it is impossible to generate enough returns to live on this account size for a day, let alone a year.

An account with $500 and a return of 100% annually, would still put an individual in extreme poverty in Somalia, let alone the United States.

Despite that with an account of $1,000,000 achieving a modest 10% annually provides 200 times the return of the smaller account making 100%.

This illustrates that while anyone can trade having access to capital makes trading as a business a lot more feasible.

A business that has a lot of capital but loses or fails to make money is not going anywhere.

If I buy hats for $50 and sell them for $40, I am a poor businessman. The same goes for trading.

Over 90% of investors fail to beat the index over long periods of time. While this may be discouraging, remember the same statistics are true for all entrepreneurs.

For every Shark Tank success story there are a hundred failed vegan fusion restaurants.

Trading, like entrepreneurship, has a lot of potential convexity, but it is not without its risk .

Taking average long run index returns of 7% can be a starting point.

If you are not confident in beating these returns the best decision for your business is passive investing and working another job.

This allows you to save while increasing your capital.

What Is My Realistic Level Of Return?

Establishing your own expected return is done by taking your investing performance and comparing that to a benchmark.

A long stock portfolio that went up by 20% may sound great until you realize that in the same year the index went up 30%.

To measure a realistic level of return one needs to have either a long track record or a clear understanding of the risks and rewards of your investments.

One of the biggest failures of individuals is underestimating how much luck goes into life let alone investing.

Simply because you got lucky and have had excess returns that does not mean you have any advantage in your investing method.

This is in the same way that a roulette player can win money but still have no edge over the casino.

Being able to state out clearly why you are generating the returns you are is an important part of managing expectations and defining risks.

The most dangerous trait of an investor is perceived skill.

Workstation Costs

A deceiving thing presented to new traders is that a workstation must be overly complicated.

A quick search for traders’ workstations will show pictures such as below.

Source: Investors Underground

Last time I checked the number of screens you have doesn’t have any correlation to how much money you make…

So why does everyone have all these screens?

You will notice the photos that come up are from the same guys flashing pictures of them sitting in a rented Lamborghini on their social media.

The goal from this “promoter” is to simply convince the investor that because of this complex set up they are smart. Have you been fooled?

As a caveat there are some professionals who need many screens though these are likely mainly market makers who are streaming multiple quotes and have an operator running them.

If you think you can compete in the high frequency game, think twice.

I will bet on the multimillion-dollar company with cables wired directly to the exchange before you in your parents’ basement anytime.

So, What Do You Need?

A laptop that works and is functional. Perhaps a second screen if you would like. A desk and a comfortable chair. That’s it!

The most important thing is you have a clean comfortable place away from distractions that can allow you to work efficiently.

Any additional expenses in your workstation are a cost that reduces the profitability of your business, so should be evaluated as such.

Simplicity is key.

The amazing thing about a simple set up is you can trade from almost anywhere.

Though I do not recommend bringing your workstation to a beach.

Source: The Lazy Investor

Picking the Right Brokerage

Choosing the right brokerage is another important decision in how you run your business. Commissions and transaction costs are part of the business, but the goal should be to have these as low as possible.

While a small commission of a few dollars may seem negligible, over the course of a year, it adds up.

This can flip a trading strategy from being profitable to one that loses money. While commissions should be kept as low as possible there is a caveat.

Picking a commission free broker may actually leave you worse off.

This is because the broker will simply sell your order flow.

Ironically, your resulting fill prices may be worse than simply paying the small commission in the first place.

If you don’t pay for the product, you are the product. 

Another important thing for your broker to have is a professional reputation.

Asking yourself questions such as does this broker have frequent outages? What are the products and services offered that I could trade?

A few times an amazing trade comes up and one of my friends lacks permissions or the brokers ability to trade on that instrument.

That is an opportunity cost.

Overall choosing a brokerage with a complicated and unappealing user interface is often better than one with flashy bells and confetti.

To recommend a few choosing Interactive Brokers or TD Ameritrade are reasonable brokers while something like Robinhood should be avoided.

Though it is important for each investor to do their own due diligence to find the best broker for them based on their trading style and business.

Having the Right Data

Having access to data is another crucial part of your business.

Back before computers, investors would read the morning newspaper to get updates on their stocks.

Imagine the advantage if you could get access to the ticker tape at the exchange!

Nowadays a lot of the data has been democratized.

Hence getting things such as real time quotes and some analytics is generally available somewhere for free.

Nevertheless, it is often still subpar to paid data sources.

There is a reason why professionals pay over $30,000 for a Bloomberg terminal.

Hint…it’s not for the fancy keyboard!

Give a monkey a Bloomberg Terminal and it’s still a monkey.

Paying for data you gain no benefit from is like paying for a gym membership if you never go.

Added costs and reduced profitability of the business ensue.

Simple Conclusion. Pay for data if you cannot get it free if the added value exceeds its costs.

Miscellaneous Costs and Poor Execution

It would be nice to perform every investing decision perfectly as per a set out business plan. Unfortunately, in trading things get in the way.

Holding positions that didn’t work out to avoid a loss and changing variables to suit one’s emotional needs are a few examples of how a strategy can be poorly executed.

Even if one is diligent with their rules there is always the issue of fat fingered trades and mistakes.

These are purely unintentional, simply like a restaurant waitress spilling a drink. If most businesses have a section for accidental slippage, you should consider it to.

On a personal level it is always very annoying when these types of mistakes happen.

Yet by acknowledging they are part of the business and will happen in the future you may not be as hard on yourself, after all you are not a robot.

Trading is a competition not a test.

Gone are the days of a good job sticker for trying on top of your preschool art project.

The market does not care about fairness of profits, and it is unforgiving.

While this may seem unappealing it is no different than any other entrepreneurial business.

Imagine I want to sell custom made hats.

After selling a few to some friends, I placed an order for a thousand hats to be produced from a low-cost factory in China.

The hats arrived and it turns out I can’t sell them.

Everyone is already selling custom hats on Etsy and my friends were just pitying me by buying a few.

The money’s gone and all I have to show for it is a garage full of UV protection.

So, who is my competition?

Some of the world’s smartest people are involved in the financial markets.

They have access to better data and resources to you. Some might even have insider information.

They are sophisticated.

Often, they have degrees in mathematics or financial engineering.

They are faster than you.

They might work at market making firms such as Virtu or Susquehanna which make profit on almost 99% of all trading days.

If this sounds daunting, it should be.

Yet there are some distinct advantages you have in your retail business.

Firstly, while these firms have better tools, they also have more costs.

Data costs, insurance, Manhattan offices and six figure associate salaries to pay out.

These are substantial and can cause many funds to fail.

Another issue comes about because of their capital size.

Now you may be thinking, I thought you said the more capital the better right? Well, the irony is that capital can work as a double-edged sword.

Once funds grow large enough beating the market becomes increasingly difficult.

For example, a retail investor buying a hundred shares of Apple has virtually no market impact.

Contrast that to a fund buying a million shares, they are going to pay a price…

Now let’s imagine that the fund wants to buy the same amount of a small cap like Microvision.

Not going to happen.

The first slice of the pizza is always the best.

If I Don’t Have a Trading Business, what would I do Instead?

A key aspect of any successful trader is making the optimal decision with the highest positive expected value.

Naturally, even if one makes profits while trading it comes at an opportunity cost. That cost is time.

For a full-time trader, that time could be viewed as the potential earnings accrued in job one is qualified for.

That may be flipping Big Mac’s at McDonalds or as a top lawyer, it varies on your personal skills.

By taking one’s potential income, we can create a fair value for their time.

If trading will learn less than that value, then maybe it’s important to keep your day job.

Obviously making the decision comes down to more than purely economic reasons.

Perhaps you would enjoy trading more than flipping burgers, I know I would.

Hence using a calculation like net utility would make more sense.

Taking the best decision for you can be unique.

Maybe you work a full-time job while trading on the side.

Perhaps you realize you do not want to take it that seriously but enjoy the thrill as a hobby.

It is all about making the best decision for you while considering all the alternatives.

In trading understanding variance is part of the game.

If you can’t deal with prolonged drawdowns, you are playing the wrong game.

There are freak events that happen that cause severe dislocation of prices. There are also long periods of time where strategies that should pay off simply do not work.

For example, if you invested in the Japanese stock market Nikkei in 1985 you would still be down today.

These events should be at best prepared for, although at the end of the day we must live so that they may happen, and our business could ultimately be unsuccessful.

No risk, no reward.

Your Business May Succeed 

The amazing thing about the market is it does not care where you came from.

You could be a Harvard graduate, high school dropout, black, white, overweight, autistic, or a social reject.

None of these things have anything to do with being profitable in your trading business.

While the path is hard with the right resources, attitude, and the desire to continue to learn incredible things can happen.

One thing, no matter the journey, it will all be on your own terms.

Trade safe!

Disclaimer: The information above is for  educational purposes only and should not be treated as investment advice . The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

Like it? Share it!

Great, well written article, Gavin!

Thanks Gert.

This, and many other articles, in your web site show you are a real trader, sharing your real and valuable experience (just as important as your know how or more).

If I was a beginner I will not hesitate to take you as my mentor and reference point. It will save me years of learning curve and thousands of market tuition. I suppose in the following paragraph “learn” has to be replaced by “earn” (a minimal and insignificant typo): “If trading will learn less than that value, then maybe it’s important to keep your day job.” In a sea of delusional marketers, you are a rare pearl Warm regards.

Thanks, much appreciated.

“One of the biggest failures of individuals is underestimating how much luck goes into life, let alone investing.” “The most dangerous trait of an investor is perceived skill.” These are great truths.

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Closed my Oct BB (a few moments ago) for 34% profit…that is the best of the 3 BBs I traded since Gav taught us the strategy…so, the next coffee or beer on me, Gav 🙂

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How to Trade Options in 4 Steps

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Options trading means buying or selling an asset at a pre-negotiated price by a certain future date.

You can get started trading options by opening an account, choosing to buy or sell puts or calls, and choosing an appropriate strike price and timeframe.

Generally speaking, call buyers and put sellers profit when the underlying stock rises in value. Put buyers and call sellers profit when it falls.

Options trading can be risky, but it can offer investors a unique way to profit from stock swings or generate income.

If you've been reading about investing during this time of historical volatility, you've probably heard of options trading.

Options are complex financial instruments which can yield big profits — or big losses. Here's what you need to know about how to trade options cautiously.

What is options trading?

Options trading is when you buy or sell an underlying asset at a pre-negotiated price by a certain future date.

Trading stock options can be complex — even more so than stock trading. When you buy a stock, you just decide how many shares you want, and your broker fills the order at the prevailing market price or a limit price you set. Options trading requires an understanding of advanced strategies, and the process for opening an options trading account includes a few more steps than opening a typical investment account.

» Is options trading better than stocks? Learn about the differences between stocks and options

In 2022, the stock market saw its share of highs and lows amid concerns about inflation, Russia's invasion of Ukraine and rising oil prices. When the market is volatile, options trading often increases, says Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research.

“You can use options to speculate and to gamble, but the reality is ... the best use of options is to protect your downside,” he says. "Options are one way to generate income when the markets aren’t going up.”

According to the Options Clearing Corporation, there were 939 million options contracts traded in March 2022, up 4.5% compared with March 2021. It was second-highest trading month on record. [0] OCC . OCC Total Volume for March 2022 Second Highest Month on Record, Up 4.4% Year-Over-Year . Accessed Apr 18, 2022. View all sources

» Need to back up a bit? Read our full explainer on what options are

How to trade options in four steps

1. open an options trading account.

Before you can start trading options, you’ll have to prove you know what you’re doing. Compared with opening a brokerage account for stock trading, opening an options trading account requires larger amounts of capital. And, given the complexity of predicting multiple moving parts, brokers need to know a bit more about a potential investor before giving them a permission slip to start trading options. Wendy Moyers, a certified financial planner at Chevy Chase Trust in Bethesda, Maryland, says people who know the market well, and have time to watch it, are better suited to options trading than busy, beginner investors.

"It’s definitely more complicated, and you have to be on top of it all throughout the trading day," she says.

One way to get some practice trading options is to try a paper trading account. These are free accounts where you can trade with fake money until you have your options-trading strategy down pat.

» Get some practice: Check out the best brokers for paper trading

Brokerage firms screen potential options traders to assess their trading experience, their understanding of the risks and their financial preparedness. These details will be documented in an options trading agreement used to request approval from your prospective broker.

» Ready to get started? See our list of the best brokers for options trading

You’ll need to provide your:

Investment objectives. This usually includes income, growth, capital preservation or speculation.

Trading experience. The broker will want to know your knowledge of investing, how long you’ve been trading stocks or options, how many trades you make per year and the size of your trades.

Personal financial information. Have on hand your liquid net worth (or investments easily sold for cash), annual income, total net worth and employment information.

The types of options you want to trade. For instance, calls, puts or spreads. And whether they are covered or naked. The seller or writer of options has an obligation to deliver the underlying stock if the option is exercised. If the writer also owns the underlying stock, the option position is covered. If the option position is left unprotected, it's naked.

Based on your answers, the broker typically assigns you an initial trading level based on the level of risk (typically 1 to 5, with 1 being the lowest risk and 5 being the highest). This is your key to placing certain types of options trades.

Screening should go both ways. The broker you choose to trade options with is your most important investing partner. Finding the broker that offers the tools, research, guidance and support you need is especially important for investors who are new to options trading.

» Need some help? Learn how to choose an options broker

2. Pick which options to buy or sell

As a refresher, a call option is a contract that gives you the right, but not the obligation, to buy a stock at a predetermined price — called the strike price — within a certain time period. (Learn all about call options .) A put option gives you the right, but not the obligation, to sell shares at a stated price before the contract expires. (Learn all about put options. )

Which direction you expect the underlying stock to move determines what type of options contract you might take on:

If you think the stock price will move up: buy a call option, sell a put option.

If you think the stock price will stay stable: sell a call option or sell a put option.

If you think the stock price will go down: buy a put option, sell a call option.

Frederick says to think of options like an insurance policy: You don’t get car insurance hoping that you crash your car. You get car insurance because no matter how careful you are, sometimes crashes happen.

"You buy options hoping you don’t need them,” he says.

This is just a very basic overview. For a look at more advanced techniques, check out our options trading strategies guide .

3. Predict the option strike price

When buying an option, it remains valuable only if the stock price closes the option’s expiration period “in the money.” That means either above or below the strike price. (For call options, it’s above the strike; for put options, it’s below the strike.) You’ll want to buy an option with a strike price that reflects where you predict the stock will be during the option’s lifetime.

You can’t choose just any strike price. Option quotes, technically called an option chain or matrix, contain a range of available strike prices. The increments between strike prices are standardized across the industry — for example, $1, $2.50, $5, $10 — and are based on the stock price.

The price you pay for an option, called the premium, has two components: intrinsic value and time value. Intrinsic value is the difference between the strike price and the share price, if the stock price is above the strike. Time value is whatever is left, and factors in how volatile the stock is, the time to expiration and interest rates, among other elements. For example, suppose you have a $100 call option while the stock costs $110. Let’s assume the option’s premium is $15. The intrinsic value is $10 ($110 minus $100), while time value is $5.

This leads us to the final choice you need to make before buying an options contract.

4. Determine the option time frame

Every options contract has an expiration period that indicates the last day you can exercise the option. Here, too, you can’t just pull a date out of thin air. Your choices are limited to the ones offered when you call up an option chain.

There are two styles of options, American and European, which differ depending on when the options contract can be exercised. Holders of an American option can exercise at any point up to the expiry date whereas holders of European options can only exercise on the day of expiry. Since American options offer more flexibility for the option buyer (and more risk for the option seller), they usually cost more than their European counterparts.

Expiration dates can range from days to months to years. Daily and weekly options tend to be the riskiest and are reserved for seasoned option traders. For long-term investors, monthly and yearly expiration dates are preferable. Longer expirations give the stock more time to move and time for your investment thesis to play out. As such, the longer the expiration period, the more expensive the option.

A longer expiration is also useful because the option can retain time value, even if the stock trades below the strike price. An option’s time value decays as expiration approaches, and options buyers don’t want to watch their purchased options decline in value, potentially expiring worthless if the stock finishes below the strike price. If a trade has gone against them, they can usually still sell any time value remaining on the option — and this is more likely if the option contract is longer.

Options trading examples

Even simple options trades, like buying puts or buying calls, can be difficult to explain without an example. Below we're walking through a hypothetical call option and put option purchase.

An example of buying a call

Imagine a company called XYZ Corp. with a share price of $100. If you think the price is going to rise to $120 by some future date, you could buy a call option with a strike price less than $120 (ideally a strike price no higher than $120 minus the cost of the option, so that the option remains profitable at $120).

If the stock does indeed rise above the strike price, your option is in the money. That means you can exercise it for a profit, or sell it to another options trader for a profit. If it doesn't, then your option is out-of-the-money, and you can walk away having only lost the premium you paid for the option.

An example of buying a put

Similarly, if you think XYZ's share price is going to dip to $80, you could buy a put option (giving you the right to sell shares) with a strike price above $80 (ideally a strike price no lower than $80 plus the cost of the option, so that the option remains profitable at $80).

If the stock drops below the strike price, your option is in the money and you can profit from it. Otherwise, you'd forfeit the premium and walk away.

Why trade options?

"The pros are you could make a little bit extra money on investing in the short term," Moyers says. "The con is you could lose everything, depending on how you structure your options trading."

Once you have learned the strategies and you're willing to put the time in, there are several upsides to options trading, Frederick says. For instance, you can use a covered call to help you generate income in a sideways market.

Frederick says most covered calls are sold out of the money, which generates income immediately. If the stock falls slightly, goes sideways, or rises slightly, the options will expire worthless with no further obligation, he says. If the stock rises and is above the strike price when the options expire, the stock will be called away at a profit in addition to the income gained when the options were sold.

» Ready to learn more? Read 5 basic options trading strategies

That depends on your broker. Some brokers restrict access to options trading via an aptitude test, a minimum balance or margin requirement, or all of the above.

In simple terms, puts are contracts that involve selling the underlying stock, while calls involve buying it. For more information, check out our article on call vs. put .

That depends on your broker. Some brokers restrict access to options trading via an aptitude test, a minimum balance or

requirement, or all of the above.

In simple terms, puts are contracts that involve selling the underlying stock, while calls involve buying it. For more information, check out our article on

call vs. put

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Trading Plan Template & Examples: Step-by-Step Guide to Creating a Solid Trading Plan

Bonus Material:

Trading plans are an important part of any trader’s toolkit. The problem is, most traders don’t actively lay out a plan before they begin trading.

The result? They lose money and wonder why . Furthermore, many traders don’t know how to create a trading plan , or what to include.

Successful traders understand that trading plans are crucial to profiting consistently. In this article, I’ll walk you through creating your own plan, step-by-step, plus you can get a head start by using my free trading plan template, download below :

What is a trading plan?

A trading plan is an integral part of a trader’s strategy, outlining how trades are executed. It establishes rules for buying and selling securities, position sizing, risk management, and tradable securities. By following this plan, traders maintain discipline, consistency, and leverage proven strategies.

Why you should create a trading plan

Ask a new trader what they intend to do before the trading day and then ask them what they did at the end of the day. They almost certainly didn’t follow their plan. 

Trading plans are there for us to follow. Trading plans mean we take trades that are consistent with our rules and risk, and it means we remove a lot of emotion and discretion . This is important because humans are not rational agents and outsourcing this work means we can achieve a better P&L and make more money. 

A trading plan should resemble a business plan. A trader’s capital is their business and so we need to include everything that might be useful, but it should always cover the below.

What to include in your trading plan

• The time required to spend on your trading

Your trading goals and targets

• Your risk tolerance and risk management rules

Available capital for trading

Specific markets you wish to trade, the trading strategies you’ll use, your motivation for trading.

Read more information on what to include in your trading plan (with examples) below, and download your free template here:

The time required for trading

We need to define the time we need in order to trade successfully. For example, if you’re in full-time employment, then it’s unrealistic to spend six hours a day trading the market.

For example: Here is a part of my trading plan…

“To trade the UK stock market on a full-time basis I realistically need to spend at least 8-10 hours per day in order to take advantage of intraday opportunities and manage open positions in real time”.

It’s important to set realistic targets in trading. Once you have a target, you can reverse engineer how to achieve it.

For example: A target of increasing a trading account by 20% is an achievable target. To do that, we need to look at our trading capital and work out which trading strategies we’ll use.

Using breakouts to trend follow is a strategy I have had much success with, and I explain how I do this in my guide to breakouts.

There are several trading styles:

• Swing trading: This is a common strategy that attempts to capture moves over several days or weeks. Swing traders look for shorter term trends and then move onto the next trade.
• Momentum trading: This is a trend-following strategy based on upward movement and momentum. It can be a successful strategy over months and years as the stock continues to move higher. This is often coupled with increasing fundamental strength and accelerating earnings.
• Scalping or intraday trading (also known as ‘day trading’): Intraday strategies refer to trades placed and closed within the same trading session. 

Your risk tolerance and risk management rules 

Risk management is the most important part of trading. Position sizing is the first and last line of defence in our trading accounts.

If you take position sizes with 20% of your account, then that means you are risking 100% of that position every time it is risked in the market. Even if the chances are 99%, then eventually that 1 in 100 chance of the stock going to 0p and losing 100% of the position will happen.

Whilst a 20% drawdown on the trading account isn’t fatal, the law of compounding means that we will now need to gain 25% of our account just to get back to where we started. 

Never underestimate the numbers here – a 33% drawdown requires a near 50% gain just to get back to where we started. 

It’s important to put in place risk management rules that will protect the account and prevent us from taking on too much risk.

Only you will know how much risk you’re willing to take, but if you put yourself in a position where you could do yourself material damage, then eventually that outcome will be presented.

If taking a loss hurts, then it means you are trading too large. Most traders blow their accounts due to overexposure. I’ve never heard of a single trader who blew their account due to continuously taking small losses. Position sizing and risk management is covered in detail in my trading handbook.

Download the free ebook now

Enter your email to receive my free UK stock trading handbook, packed with professional techniques to manage risk and consistently profit on AIM stocks.

Traders should always be clear about what money should be used for trading and what money should stay in their bank accounts. 

Far too many traders have drawdowns in their trading accounts and decide to top up their account with a bank transfer.

Unfortunately, they end up putting far too much money into their account and do not keep track of their losses.

You should never trade with money you can’t afford to lose. I’ve had emails from people asking me what to do because they’ve lost the deposit for their house and they haven’t told their partner. Sadly, there is little that can be done at that point because the money is already lost.

In your trading plan you should be clear about how much is going into your trading account and how much you will top this up each month if that is going to be your strategy to grow your account further. 

However, the best way of growing your trading account is by making money trading successfully in the market. Once you can consistently do this, then it makes sense to increase your funds and scale up. 

A trading plan should also include the specific markets you wish to trade. Do you plan on trading UK stocks, US stocks, foreign exchange (forex), or cryptocurrencies? Once you’ve picked a market, you still need to drill deeper. 

For example: If you pick UK stocks will you trade all of these, or just AIM, or just the Main Market? Will you trade only small cap stocks? Will you trade both SETS and the SETSqx platforms ? 

In my case, I trade all UK stocks, and don’t discriminate between any of them. However, my focus is on smaller stocks under £500 million market cap. 

Your trading strategies are the ways you are going to make money. This part of the trading plan is important because by defining your strategies it will be clear to follow.

For example: I want to trade small-cap stocks that have momentum behind them, and I will find this momentum through technical breakouts and positive RNS announcements.

I will trade gaps and also place orders into the auctions in order to get better fills. I will use various brokers for different types of execution. I will take secondary raises that have news catalysts that can potentially drive the shares higher.

What is your why? What are your goals, and what is your motivation? Trading is hard and there are ups and downs – it’s easy to motivate yourself when the going is good and you’re making lots of money. But it can be harder when you’re suffered several losses in a row, and you keep seeing your account grind lower or flat for weeks on end. 

Writing down your why will make it easier to stay focused and commit to the long-term process and improvement.

For example:

• I want to trade because I enjoy the challenge and I also want to be my own boss.
• I want the freedom that comes with the lifestyle of a full time trader and I want to be around my wife and future children as they grow up.
• I want to offer my family a better life, and by continuing to work on my skillset is putting me closing towards my goals.

Good trading plan example

How do you write a trading plan?

• Know your trading playbook
• Manage your risk 
• Have a realistic profit target

1. Know your trading playbook

You should have a playbook of trades that you know how to execute in the market. A playbook is a list of trades, each with step-by-step instructions on how to trade the pattern. 

If you don’t know what you should trade in your trading plan then building a playbook of trades is a good place to start. 

2. Manage your risk

Risk management is a crucial skill for any trader. I’ve written an in-depth article on trading risk management for further information.

The reason risk management is so important is that without it we would blow up our accounts. Nobody would think about driving a car with no brakes because it would obviously crash – risk management is the brakes and safety system for our trading accounts.

Everyone has different risk profiles. Some are happy to take on high amounts of risk accepting that they may take hefty losses in order for the possibility of excess return. 

Full-time traders like myself tend to be more cautious knowing that if they lose too much capital, they may have to go back to work. 

You should include in your trading plan how much you’re prepared to risk on particular trades in your playbook and how much in your account overall.

3. Have a realistic profit target

Having an idea of a profit target will mean that you don’t end up falling into the trap of never selling. Far too many traders watch a stock rise, see it pullback, then immediately regret not nailing down profit into strength.

By setting out clear take profit targets this avoids indecisiveness and will ensure you execute ruthlessly. 

Bonus tip: Trade the stocks in play

Trading is about being in stocks that are moving. Volatility is the lifeblood of a trader, and a dead stock means dead money. 

The stocks ‘in play’ are the stocks that have moved or are moving in recent sessions, and the stocks we should be immediately keeping tabs on. Stocks can cycle in and out being in play, and so we need to keep track of those that offer the greatest volatility to trade.  

Download my free one-page trading plan template

My opening plan trading template has everything you need to begin the trading day. It forces you to check and review your open positions, so you’re always knowing what to do. 

It also suggests to list the current stocks in play, and how you can trade them, and in what size. Additionally, it asks “What can happen?” so a trader using this template will never be caught out.

By thinking ahead about potential scenarios and how to trade them, this gives the trader an advantage over others who do not put the work in. Traders who punt around their money without a clue or a plan are commonly referred to as “liquidity”.

To download the free template, click the button below and follow the instructions.

About The Author

Michael taylor.

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Analyzing Alpha

Setup a Trading Business: The Complete Guide

By Leo Smigel

Updated on October 13, 2023

Trading as a business involves trading stocks and other financial instruments under a legal business structure, such as a sole proprietor, partnership, or limited liability company (LLC).

Everyone wants to make money, and everyone wants to be free.

You can accomplish both if you’re a successful trader.

And you’re in luck because there’s one thing I know how to do exceptionally well – it’s trading as a business.

You might say, Leo, I don’t need to start a trading business – I’m a new trader. Well then, I’ve got a question: How many successful companies do you think started without a plan? Sure, there are some, but I would bet those with a sound plan faired better over the long run.

And trading is no different. Trading is most successful when it’s done most businesslike.

And for those who are already profitable and ready to go full-time, I’ve got some massive tax-saving tips for you, so stay tuned.

I’ve also sprinkled secrets about becoming a full-time trader that you’ll be hard-pressed to find elsewhere.

I will explain everything you need to know step by step and show you how to become a professional trader running your own successful trading company, whether you’re incorporated.

Before You Can Start Trading

Before creating any business, you need to start with a solid plan and understand where you fit in the market.

But before we jump into the nitty-gritty details of running your trading business, you need to answer five show-stopping questions.

1. What Is Your Why?

Why do you want to be a trader? Many traders start trading because they want to get rich.

Now, it’s possible to become rich trading; however, understand that if you’re not a profitable trader already, the chances of success are slim.

Most studies say that only 5% of traders become profitable. And according to the Small Business Association, this is in stark contrast to starting a business where 33% are still around after year ten.

In other words, if it’s money you’re after, it’s much easier to create an online business than to become a profitable trader.

And no matter how smart you are, trading will slap you around until you’re begging to quit.

You need more than the pursuit of money to keep you in this game.

You need an unwavering passion to play, and you need an advantage.

2. What’s Your Trading Edge?

A trading edge is an observation or approach that creates an advantage over the rest of the market players. Anything that can add a few points to the winning side of the equation builds an edge in your favor.

Most traders lose money in the financial markets because they lack an edge.

I’m also going to say something controversial here:

Risk management isn’t an edge – it’s just good trading – and I can prove it.

Let’s play the coin toss game. If you guess correctly, you get a dollar and lose a dollar if you don’t. You can play this game all day long and cut your losses short, but you’re never going to make a million dollars.

Why? Because you have no edge. The probabilities are not stacked in your favor.

You need an edge to make it full-time, and you need multiple to make it a career.

You need to be the casino – you need to have multiple edges that compound over time. Don’t be a gambler with the odds stacked against you.

So how do you find an edge?

Most edges come from a better understanding of market structure, faster execution speed, or better data and analysis.

For example, a market structure edge may be an exceptional ability to exploit the post-earnings announcement drift (PEAD) anomaly. Another may be the early identification of trends through sophisticated technical or data analysis.

You want to ensure you are on the right side of the stock market as much as you can.

And if you’re struggling to find an edge, I’ve got you covered.

I backtested Scot1and’s slingshot trading strategy at a high level to verify if it has an edge – which it does. If you’re not familiar with Scot1and, he’s a professional trader. He shares his trades publicly on Twitter and has multiple triple-digit years under his belt, with his highest being 305% and last year (2021) being 150%.

Scot1and wanted to find a way to get into solid stocks before the runup and invented the slingshot trading setup. That’s one of his many edges. And this setup can work for you, too, assuming it meshes with your market philosophy and psychological makeup – but more on that later.

Once you have successfully identified and defined your edge, or better yet, edges, it’s time to consider your risk tolerance.

3. What’s Your Risk Tolerance?

Risk tolerance refers to the degree of risk you’re able to take. And while there are multiple ways to define risk, we’ll consider volatility and drawdown for our purpose.

Since your comfort level with uncertainty determines risk tolerance, it can be challenging to be aware of your risk appetite until faced with a potential loss.

You should strive to gain a clear understanding of your risk appetite and your ability to stomach large swings in the value of your portfolio.

When traders trade above their risk tolerance levels, at best, they’ll lose sleep and make suboptimal decisions the next day, and at worst, they’ll sell out at the exact wrong time.

Risk tolerance is all about understanding yourself – a key characteristic you should possess as a flourishing trading business owner.

And let me tell you when you start a trading business, and it becomes your primary source of income, your risk appetite will change a lot – even for algorithmic traders.

Most traders’ greatest struggle in establishing a profitable trading business revolves around trading psychology.

Finding edges in the market isn’t difficult. I just showed you the slingshot strategy, which is a potential edge that you can incorporate into your trading.

What’s hard isn’t knowing what you should do; it’s doing what you should do – it’s trading like a business.

And risk tolerance is just one aspect of trading psychology.

Psychology And Trading

Trading psychology refers to the emotional aspects of an investor or trader’s decision-making process – it’s how emotions affect your trading, and trading affects your emotions.

There are some important considerations to make here.

Most traders fall into thinking they can achieve trading success with little thought of their psychological makeup.

Successfully aligning your trading strategy with your psychology implies you may need to give up on or change some of your values and beliefs.

For instance, do you value your need to be “right”?.

A trader who values being “right” is more likely to refuse to set a stop and take a slight percentage loss in case the trade goes haywire.

Do overnight moves keep you up at night?

Then perhaps day trading is a better style for you.

You need to find a trading style that suits your trading psychology and addresses your strengths and weaknesses.

This doesn’t mean a risk-averse person can’t adopt a swing-trading style. It also doesn’t mean that if you value being right, you’re perpetually wrong when following your stops.

It just means that traders need to understand why they’re embracing a trading approach and have safeguards against their deficiencies – often, you can flip a weakness on its head.

For example, let’s go back to someone struggling to stop out.

The first issue might be that they do not understand what they’re trading and why they’re trading it. If they’re trading specific mean reversion scenarios, they shouldn’t be using stops – position sizing is the key to risk management; however, let’s assume that the trader was a long-only swing trader.

If they’re a breakout trader not following their stops, likely, they don’t have a deep understanding of what a breakout is and how they work.

Now I could spend hours discussing breakouts, but for now, let’s understand two things:

• Roughly 70% of breakouts fail.
• Successful breakouts rarely retrace to the low of the day.

With this market knowledge, this trader that has to be right now understands that her win percentage should be between 25-35% and where to place their stop. Additionally, their understanding aligns with their market understanding allowing her to be correct and less likely to pull the cord on the stop.

I find deep understanding solves most trading psychology challenges – but just because you’ve got your edge and your psychology in order doesn’t mean you can trade like a business just yet.

4. What Are Your Return Assumptions?

Return assumptions refer to the returns a trader or investor expects to make from a particular investment or their trading activities via their trading efforts in the financial markets.

All active traders share one common goal: to utilize their trading capital to make as much money as possible while assuming a certain level of risk.

For that reason, it’s critical to set your expectations right and figure out a rough idea of what kind of return you might achieve before you kick off your trading endeavors.

So, how do you determine a reasonable rate of return?

Whether you’re a business or a trader, the answer is the same.

Look at you and your competition’s average annual returns per each different system or setup, and determine a number you think you can realistically achieve.

Target Compound Annual Growth Rate (CAGR)

This average annual return is the target compound annual growth rate or CAGR. It’s the average return or profit you make divided by your capital.

To keep the math easy, if you make $10,000 on a $100,000 account, your annual return is 10%.

You need to calculate an appropriate CAGR accurately as it flows through to all of your other business calculations, like how much money your trading business needs to generate each year to cover its expenses.

Without history to back it up, investors shouldn’t set their target CAGR above 15%, and traders shouldn’t set their CAGR above 40%.

And yes, good traders have the potential to compound their capital faster than investors due to the structural advantages of having less money to move.

Here are the top ten filers by 10-year annualized performance to give you context.

Now, I know for some of you, these CAGR numbers are tiny, but exceptional returns are the exception, not the rule.

Minimum Absolute Return

Understanding what you can likely achieve makes it time to figure out precisely what you need to succeed.

The absolute minimum return refers to the minimum return that a trader sets over a predetermined time frame.

This return needs to cover your business expenses, which I’ll cover shortly, and the owner’s draw. The draw is the salary you need for yourself and your dependent’s living expenses.

The minimum absolute return is typically your breakeven level. It’s not the target.

Target Absolute Return

The target is your target absolute return. This is the profit you want your trading business to create over the period, typically a year.

You calculate your target absolute profit target by multiplying your target CAGR by starting capital and subtracting fees, which we’ll cover shortly.

I would advise against creating a profit target and working backward since you may need to inflate your CAGR artificially.

The last thing you want to do is overestimate your trading income and underestimate your trading loss.

Maximum Drawdown

Maximum drawdown refers to your maximum downside risk over a period. It’s the maximum observed loss from a peak to a trough.

For instance, if your portfolio value is $100,000 and you lose $30,000, your drawdown would be ($30,000 – $100,000) / $100,000 = 30% or $30,000 in dollar terms.

It’s important to note that maximum drawdown only measures the extent of the most considerable loss, excluding the frequency of significant losses.

Maximum drawdown determines how much capital you’ll need to start your trading business, assuming you’ve included multiple market cycles in your analysis.

Capital Required

Armed with an understanding of your absolute minimum return and maximum drawdown, we can finally determine how much capital you’ll need to start your trading business.

Capital required refers to the amount of money a trader needs to carry out trading activities within the financial markets.

Consider your capital as the raw material that powers your trading activity in the stock market or any business.

So let’s go through the math.

If you need to generate $50,000 per year and expect your minimum CAGR to be 10%, you would need $50,000 / 10% = $500,000 without a drawdown.

Keep in mind if your CAGR return is that low, it’s likely you don’t possess enough of an edge, but I kept the numbers simple for explanation purposes!

But that’s not all. If your maximum drawdown is 20% or $200,000, you’ll also need to add that to your initial capital.

And with all businesses, you’ll need to put in a considerable amount of time.

5. Time Commitment

Time commitment refers to the number of hours per week applied to your new trading business.

It’s essential to treat and act “businesslike” at all times.

Only by approaching each trading day with full intent and purpose can you aspire to succeed.

This extends beyond just executing your trading strategies.

It also includes learning, studying, researching new strategies, and improving your mindset as a trader.

Can you fit it all into your schedule? Do you have enough time to make it work?

These are critical questions to ask yourself before starting your trading startup.

Let’s think about this a little more.

Understanding A Trading Business

Although different from the traditional brick-and-mortar business, a trading business’s anatomy can be broken down similarly.

Think of your trading strategies as your new products and services.

Through these strategies, you’ll be generating your trading income.

And just like how traditional businesses need to constantly improve their products and services based on customer and market feedback, you’ll be doing the same, which leads me to my next point…

Trading Losses Are Expenses

Trading losses are going to be inevitable. You want to take advantage of this market feedback to improve your product. Be sure to analyze each loss and learn from them. They will be your best teacher.

But at the same time, you simply want to treat your losses as a cost of doing business.

Think of the casino business and a game of roulette.

Of course, the casino makes money when the player loses.

But does the player always lose?

So, if we have a player who is always betting on the color red, they have an almost 50-50 chance of winning each time.

There will be times when the player hits lots of reds in the short-run, and the casino loses money.

However, the house always wins.

In the long run, given that the roulette contains a neutrally colored zero, the casino has the edge (remember, we spoke about the edge earlier).

Act like a casino; if you have an edge in the financial markets, you will win long-term.

Short-term losses are simply the cost of conducting business.

Capital Preservation

But continued losses should signal to the management team that it’s time to rethink the plans.

Intelligent management knows preserving your capital to live another day is more important than making more money in the short term.

New traders often have this backward.

The truth is that the only aspect of the trading process you have significant control over is how much money you will lose in a trade.

It’s critical to size your bets correctly.

And speaking of plans, let’s go over what your trading business plan should include.

Your Trading Business Plan

A trading business plan, similar to a typical business plan, is a document that details everything that you need to know to run your trading business. It includes your objectives, how you intend to make money, your edge, what you will trade and why, and how you will grow your business.

It’s time to address the actual birth of your business as a new independent trader.

What Is Your Company’s Mission Statement?

A company’s mission statement defines its culture, values, ethics, fundamental goals, and agenda. The statement outlines what the company does, how it does it, and why. Prospective investors may also refer to the mission statement to see if the company’s values align with theirs.

A well-crafted mission statement articulates the purpose of your business.

It helps to serve as a framework for your business. Outlining what your business stands for, along with your objectives and values.

What is your mission statement? Why are you doing this? Is it just for the money? What’s your driving purpose for embarking on a trading career?

It’s critical to understand the why because it empowers the how.

What Is Your Company’s Philosophy?

A company philosophy refers to “the way we do things around here.” Conventionally, it relates to the fundamental beliefs of the people and the organization.

Your company’s philosophy boils down to your market beliefs.

Do you believe that it is fundamentals or emotions that drive the markets?

Or is it the Fed?

Your trading edges come from a deep understanding of how you view the market. And you need this deep understanding to stick to your strategies during a drawdown.

The last thing you want to do is have a shaky market philosophy and jump ship at the wrong time.

So what is your market philosophy? These will guide your principles.

What Are Your Company’s Principles?

Company principles refer to the principles that a company abides by throughout its day. These could be building a great workplace culture, conservative cash flow use, or taking significant, calculated risks.

What principles does your company abide by throughout your trading day?

These should stem from your philosophy.

For instance, if you believe that the Fed moves the market, are you selling your positions if the Fed is not printing money?

If you’re a trend follower, do you implement Paul Tudor Jones’ rule of refusing to purchase any stock below its 200-day moving average?

Having the various principles aligned with your market philosophy and mission will help you maintain the necessary discipline with your trading.

It will also help you understand what assets to trade.

Your Trading Universe

This is the range of financial instruments that a trader plans to trade across the investable universe, including all tradable assets. In reality, most investors do not invest so broadly and have a narrower universe that could be constrained to event-driven biotech stocks.

This is your total addressable market, and your edge governs it.

Assuming the above, if biotech is in a long-term downtrend, do your edges still allow you to make a profit? If not, you may need to grow your edges and the total addressable trading universe.

What Are Your Company Rules?

Company rules refer to the established rules, in writing, made by the company’s higher level of authority and bound to follow by all employees and stakeholders.

Often these rules revolve around conduct, hours worked, and customer service levels. And larger trading organizations should define these; however, the rules I’m referring to for a trading business help you protect your capital and add discipline to your trading operations to boost profitability — essentially money management rules, which I like to think of in four distinct categories.

1. Portfolio Management Rules

Portfolio management entails building and overseeing a selection of investments or investment strategies that will meet the long-term goals set above.

Most investors take the approach of diversifying their assets, which is a reliable measure.

However, a superior alternative is implementing uncorrelated strategies within the same asset class.

For instance, buyers tend to reduce their leverage during sell-offs, which causes both stocks and bonds to drop, even though these two asset classes are generally uncorrelated.

Therefore, having a mix of long and short stock strategies can help you offset this risk.

What are your portfolio management rules?

An example would never be allocating more than 25% of capital to a single strategy.

2. Risk Management Rules

Risk management is the process of identifying, assessing, and controlling threats to an organization’s capital and earnings. These risks stem from various sources, including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents, and natural disasters.

Remember that the aspect of trading you have considerable control over is how much you’re willing to lose on any given trade.

So, always go into a trade knowing your pre-defined price targets to take profits and the price points you’re willing to get out for a small loss if the trade goes against you.

The worst thing you can do is hold on to a losing trade that invalidates your thesis, hoping it will eventually become a winner.

An example of a breakout strategy risk management rule would be to set your stop at the low of the day, invalidating the idea if it moves against you, but never more than the average daily range.

3. Position Sizing Rules

Position sizing refers to the size of a position within a particular portfolio or the dollar amount that an investor will trade. Investors utilize position sizing to determine how many security units they can purchase, which helps them control their risk and maximize returns.

How much you will earn or lose from your trades is directly tied to the size of your trading positions.

Your position size will also impact your ability to diversify your trading positions.

If too large a portion of your trading account is tied up in one trading position, you won’t have the necessary capital to open other trades.

We never know which of our positions will be the big winners.

There is no worse feeling than watching the market rally, and you are in 3-4 positions that decide to sit out the rally.

Keep in mind that even with proper position sizing, there is a risk that an active trader’s position loses more than their specified risk if a stock gaps below the stop-loss order.

This is why it’s essential to position size correctly, especially around earnings announcements, which you may want to avoid altogether.

A common position sizing rule is to never risk more than 25% of your account on any single trade.

4. Leverage Trading Rules

Leveraged trading, also known as margin trading, margin finance, or trading on margin, allows you to open a trading position with a broker using a small amount of capital to take a much larger position.

Suppose you commit $10,000 on a 10X leveraged financial instrument. You’ll be trading as if you had put in $100,000.

Thus, any capital gains you make have a tenfold effect, but the same applies to losses, so using leverage implies an element of risk.

If you’re taking on leverage, ensure that your edges are well defined and diversified, and you have a clear leverage rule.

I will never go above 500% leverage, and this scales down as the volatility of the instrument increases.

Leverage is extremely risky in almost all cases. But there is one exception to this:

When trading crypto, using leverage can help mitigate the risk of an exchange hack at the cost of margin interest fees.

SWOT Analysis

With your rules established, it’s time to perform a SWOT analysis.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats, and so a SWOT analysis is a technique for assessing these four aspects of your business.

SWOT analysis is a simple tool that can help you analyze what your company currently does best and devise a successful strategy for the future.

1. What Are Your Strengths?

Strengths define what you excel at.

Perhaps you have a programming background, and you can create trading algorithms.

Perhaps you’re a decisive person who can make solid, carefully constructed decisions rather quickly.

Perhaps you’re able to stay calm and collected and perform under pressure.

For me, as you’ve probably guessed, it’s the first one that helps mitigate my weakness.

2. What Are Your Weaknesses?

Weaknesses prevent you from operating at your prime.

For instance, you may have difficulty dealing with market sell-offs and tend to get “sucked in” by the emotion of everyone else panicking.

The best way to mitigate this is to have a plan to take advantage of these opportunities.

The second best way is to reread your business plan and stay away from the news and social media on such days.

Plus, keep in mind that these sell-offs are often an opportunity in the market. Smart institutions often accumulate on sell-off days due to their liquidity constraints. If you’re a breakout trader, you should identify what stocks are acting stronger than the market.

As they say, one man’s misfortune is another man’s opportunity.

So, take note of your weaknesses and negative triggers. That way, you’ll be able to easily spot them and make logical decisions rather than emotional, irrational ones that will hurt your profitability.

My weakness?

I pay both my living and business expenses from my trading income. I would feel immense pressure to make money every day and override my trading systems in the early days.

I’m sure you can all guess what happened.

Understand what your weaknesses are, that they may change over time, and figure out how to mitigate them.

3. What Are Your Opportunities?

These refer to favorable external factors to grow your business or competitive advantage.

For instance, can your trading strategies be applied to additional trading instruments or different markets?

Crypto trading is attractive as an algorithmic trader as it trades 24/7 against relatively unsophisticated traders.

4. What Are Your Threats?

In contrast to opportunities, threats refer to factors that potentially harm your business.

Government measures towards reducing fossil fuel use towards energy production in favor of renewable energy sources pose a threat to any non-renewable energy sector business or energy stock in your portfolio.

And these types of risks apply to your trading business.

Changes in capital gains tax laws, crypto regulation, or even black swan events are threats.

Do you have proper hedging strategies in place?

With an understanding of your strengths, weaknesses, opportunities, and threats, it’s time to do some benchmarking.

Performance Measurement

Performance measurement is the process of collecting, analyzing, and reporting information regarding the performance of an individual, group, organization, system, or component.

They say what gets measured gets improved. And like other traditional businesses, trading businesses are no different.

To monitor your trading performance, you require data.

You can collect data manually from your trading platform and record it in a spreadsheet, but I highly recommend that discretionary traders use journal software that records the information.

Although there are hundreds of metrics you could track, you should track the following key performance indicators (KPIs) classified by market and strategy at a bare minimum:

• Profit & Loss
• Total number of trades
• Win percentage
• Average time in trade
• Largest winning trade
• Largest losing trade
• Average winner
• Average loser
• Maximum drawdown
• Profit factor
• Gain-to-Pain Ratio

Feel free to check out my website for definitions and example calculations for these metrics if you have questions.

Operating Costs

As promised earlier, we need to understand your trading business’s fixed and variable costs to determine the absolute minimum return.

Fixed costs are expenses that remain constant for a period of time irrespective of the level of outputs. Variable costs are expenses that change directly and proportionally to business activity level or volume changes.

So, what do these look like for your new trading business?

Fixed Costs

Here are some fixed costs trading businesses have at varying degrees:

• Computer & equipment
• Trading software
• Administration software
• Internet & telephone

You’re most likely already paying for the trading software, and the good news is that most of the home office expenses are relatively inexpensive.

But don’t forget to consider the most significant expense of them all — paying your managing member.

To understand your trading business’s true profitability, you need to track your monthly draw in your accounting software.

Variable Costs

Here are some variable costs involved with your trading business:

• Transaction fees
• Slippage costs
• One-time data costs

Office Location

Another aspect you also want to think about is if and where to set up an office.

As a trader, you can set up an office anywhere you like across the globe — granted, some time zones are more convenient than others.

You can set up your own home office.

You can also buy or rent your own business office.

A big driver of this decision is how well you can balance life and work while at home.

If you’ve got kiddos at home and cannot concentrate, the answer is typically straightforward.

Additionally, scaling to multiple employees is a little easier if you’re an algorithmic trader, as you can more easily separate roles.

These aspects determine whether it makes sense to stay at home or hang up a shingle somewhere outside of your personal space.

Regardless of where your office is, you’ll want to make sure you maximize the tax benefits.

Benefits For Incorporating

There are many benefits of incorporating your business, including asset protection through limited liability, corporate identity creation, perpetual life of the company, transferability of ownership, and an ability to build credit and raise capital and tax savings.

But if trading is your primary source of net income, you should consider incorporating it for tax purposes.

Securities are considered capital assets. The sales of these assets are taxable income considered as capital gains.

This can create massive tax liabilities on your trading operations, so it’s usually ideal for an active trader to incorporate as a company.

Additionally, trading is not considered a business activity by the IRS, so it is not possible to deduct business expenses as they are ineligible for tax deductions in this case.

This is noteworthy since costs such as software, internet access, and data access can be significant for most active traders.

However, you can receive similar tax treatment to other business owners by creating a separate business entity to conduct your trading activities.

You can form a sole proprietorship, partnership, or S-Corp, and file for trader tax status (TTS), which exempts you from the $3,000 capital loss limitation and wash sales adjustments.

A trader can form a single-member LLC to elect S-Corp trader status. The main tax benefits of creating an S-Corp are to arrange tax deductions for health insurance premiums and a retirement plan contribution.

In addition, an S-Corp does not pass through negative self-employment income (SEI), and the employee benefit deductions work tax efficiently.

C-Corps are not ideal for a trader status because the IRS might charge a 20% accumulated earnings tax and the 21% flat tax.

Before incorporating a company, ensure you qualify for it. The business must be eligible for claiming TTS.

While there’s no specific ruleset, we can look at prior court cases to determine eligibility guidelines.

As a trader, you need at least four trades per day. Trade executions on approximately four days per week. More than 15 trades per week, 60 per month, and 720 per year.

Your average holding period must be under 31 days.

Additional factors include having a material trading account size ($25,000 for pattern day trader designation on securities and $15,000 for other instruments).

Spending over four hours per day with the intention to run a business to make a living.

Plus, having trading computers, multiple monitors, and a dedicated home office.

Please keep in mind I’m not a lawyer or an accountant; please consult these professionals so they can understand your specific situation and tax law.

The Bottom Line

We’ve covered much of what you need to know for setting up your trading as a business.

It requires several moving parts, from determining your why, identifying an edge, creating your rules, and even getting into the nitty-gritty of incorporating a legal entity.

The exact, crystal clear method you specifically choose to become a successful trading business owner will not be drawn on a map for you.

Just kidding, there is a map.

It’s called Analyzing Alpha.

Be sure to subscribe to our newsletter below to receive exclusive email content that’s jam-packed with value to help you on your journey to becoming a truly successful and profitable trader.

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• Glossary of Terms
• History of Options Trading
• Definition of a Contract
• What is Options Trading?
• Risks Involved
• Where to Trade
• Types of Contracts
• Types of Orders
• Types of Trader & Trading Styles
• Types of Spreads
• Comparing Options to Other Financial Instruments
• Initial Preparation
• Choosing a Broker
• Trading Levels
• Identifying Trading Opportunities
• Risk & Money Management
• Planning Trades
• Monitoring Your Trading
• Full Service vs Discount Brokers
• Best for Beginners & Small Traders
• Best for Stock Options
• Best for Forex Options
• Best for Binary Options
• Best for OTC Options
• Best for Active Traders
• Best For Auto Trading
• Best Trading Platforms
• All Broker Reviews
• Advanced Terms & Phrases
• Volatility & Implied Volatility
• Risk Graphs & Risk to Reward Ratio
• Black Scholes Pricing Model
• Binomial Pricing Model
• Auto Trading
• Options Greeks
• Choosing the Right Strategy
• Strategy Selection Tool
• A-Z Strategy List
• Bullish Trading Strategies
• Bearish Trading Strategies
• Neutral Market Strategies
• Volatile Market Strategies
• Other Trading Strategies
• Planning Individual Trades

So far in our guide to getting started with options trading, we have covered a number of stages you should go through when first setting out. We have explained the importance of being properly prepared, provided details to what your preparation should involve, gave information on choosing an online options broker, and explained the significance of account trading levels. We have also detailed how to identify trading opportunities and the methods you can use to manage your money and your exposure to risk.

Assuming that you have assimilated and understood all of the above, you should be ready to actually begin buying and selling options. All you need to know now is how to put together everything you have learned and decide which trades to make. On this page, we have provided a step by step process for planning each individual trade you make. Over time, this process will become second nature to you, and you may even adjust it to suit your own preferences. While you are starting out we recommend you follow the steps in the order suggested below.

• Make your Forecast

Set your Targets

Choose a strategy, determine position size, plan your entry, prepare your exit.

• Initial Preparation for Trading
• Choosing an Options Broker
• Trading Levels at Brokers
• Identifying Trade Opportunities

Make Your Forecast

Once you have carried out the necessary research and highlighted an opportunity to make a trade, you need to determine how you are going to try and make a return. This basically means deciding what your forecast, or outlook, is on the security you have identified as an opportunity.

If you were investing in stocks then you would be looking for either stocks that were likely to increase in value so that you could buy them and profit from the increase, or stocks that were likely to decrease in value so that you could short sell them and profit from the fall. However, with options there are several different outlooks that you can profit from. You can certainly make options trades where you can profit from a security simply going up in price, or from a security going down in price, but you can also profit from other scenarios too.

For example, if you highlighted a security that you felt was likely to remain at its current price for a while then there are strategies you could use to benefit from that stability. If you highlighted a security that you felt was going to fluctuate moderately over a period of time, but you weren’t entirely sure whether it would go slightly up in price or down in price, then there are also strategies where you could make a profit out of moderate moves in either direction.

This is one of the major benefits of options; no matter what your outlook on any given security there is always a strategy you can use to try and profit from your forecast. If you are confident that you have correctly forecasted what is going to happen to that security, then you simply need to select a suitable strategy, decide how much to invest the trade, and then place the appropriate orders. Before that, though, you will want to consider setting some targets.

While this isn't a necessary step for every trade you make, it's usually a good idea to set targets. The main target you should be setting is how much profit you wish to make because, without knowing how much you are expecting to make it's impossible to gauge whether or not a trade has been successful.

Another target might be the length of time in which you expect to make a certain amount of profit. This can help you with budget control because, you may not want to have funds tied up in any one trade for too long. The setting of targets will also assist you with some of the later steps in planning your trades which we cover below.

There are almost limitless ways that you can combine various options positions to try and profit from any outlook you have on any particular security. The key to success is really as simple as using the right combination at the right time. Whenever you combine multiple options positions on the same underlying security you create options spreads, and each specific spread is effectively its own unique strategy. Once you have made a forecast on how you expect the price of a security to move, you need to select a strategy that is right based on what your outlook is and any targets you have set.

For a relatively straightforward way to choose an appropriate trading strategy, we would suggest taking a look at our section dedicated to Options Trading Strategies. In this section we have provided a comprehensive list of most of the standard strategies that can be used. To make it as easy as possible for you, we have divided these strategies into a number of different categories. The four main categories are based on what outlook the strategies are suitable for and there are as follows:

• Bullish Strategies
• Bearish Strategies
• Strategies for a Neutral Market
• Strategies for a Volatile Market

If you visit the relevant category, then you will see a list of strategies that you can use to try to make a profit from market movements you have forecasted. Some of the strategies are relatively simple while others are significantly more complex; you just need to decide which is the best suited for the particular trade.

At this point you should take risk management into account, consulting your trading plan if necessary, and ensuring that you are taking an appropriate level of risk. As you gain more experience and become more familiar with all the different strategies, you should be able to decide on a suitable strategy with relative ease. You may also find it useful to use the following – Selection Tool for Options Trading Strategies .

Once you have chosen which strategy you will be using, the next step is to size your position and decide how much of your capital you will be risking. Always remember how important position sizing is for controlling your budget. No matter how confident you are that a trade will be successful, you really should limit the percentage of your capital that's on the line. Position sizing isn't just about how much money you are paying at the point of making a trade, but it's also about how much money you are putting at risk.

If you are creating credit spreads for example, you will receive an upfront payment when making the trade, but you will be exposed to potential future losses. Your potential losses must be taken into account when you are deciding on what level to size your position beause, this is ultimately how much of your capital is at risk. Getting this step wrong could potentially lead to losses that decimate your investment capital, so effective position sizing really is vital. Your position sizing should also take into account any targets you have set.

With all of the above steps completed, you are now ready to go ahead and plan your entry into the relevant options position. Depending on the nature of the opportunity you have identified, you may need to wait for certain criteria to be met before actually making the necessary transaction(s), or you may have to act immediately.

For example, you might have identified a security that you think will be about to rise dramatically in price, but you first want confirmation of it reaching a certain price point or resistance level. If it doesn’t reach the required level, then you don’t make the trade. If it does, then you will want to make the trade as quickly as possible which is why you need to have carried out the above steps first. If the opportunity requires immediate action, then you obviously will want to go ahead and enter the position accordingly.

To actually enter the position and make the trade, you will need to place the necessary order, or orders, with your broker. It's always a good idea to have some funds deposited with your broker so that you can place orders quickly when you need to. A delay in placing your order because you first have to add some funds to your account could end up costing you money or even result in missing the opportunity entirely.

If multiple orders are required, then you will need to decide whether you are going to try and have all those orders filled simultaneously or use legging to fill them in stages. Once your order is placed and your trade is underway, then you just have one more step to consider.

At the point of entering a position, you should already be thinking about how and when you are going to be exiting that position. There are a number of considerations here, such as whether you are planning to let your positions run until expiration or whether you are planning to close them early.

If you have set targets for a trade then you should also plan for closing your positions if you make the required level of profits or if the specified amount of time passes. If it consists of multiple positions, you should also decide whether you will be closing all the positions simultaneously or legging out of them individually. You may also want to plan at what point you will cut your losses if things don’t go according to plan.

Taking the above information into account, you must then decide how you will go about closing your positions when necessary; there are essentially two ways you can do this. You can either monitor the markets, closing the positions when the time is right, or you can set up automatic exit points where possible, by using stop orders for example. Once your exit is prepared, you should be ready to move on to your next trade.

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10 Elements of a Winning Trading Plan

Mar 18, 2019

Written by: Al Hill

Ask 100 traders if they can send you a copy of their sample trading plan and I guarantee you it will be the highest rejection level event of your life.

Unlike business owners who generally have a business plan in order to provide a strategic vision to employees and to stay focused on their primary line of business, most traders never take the time to create a business, a.k.a trading plan.

What is a Trading Plan?

A trading plan is your roadmap for what you are going to do in the markets. It’s something that you have to create and is not optional.

The trading plan can be whatever works for you, but it needs to be written down. For me, at times it has been illustrations, while other times it has been a technical manual of sorts.

You want the plan to be a page. Now, I’m not suggesting you over complicate your strategy, but you should have a detailed idea of what you are doing. This should go beyond the standard trading setup and needs to touch on items like money management, trading discipline and your overall purpose for trading.

Now, let’s dive into how to create a trading plan using the 10 elements of a winning trading plan you can create to help improve your performance.

#1:  How Many Trades will You Use to Evaluate Your Performance?

How Many Trades?

In most lines of business, time is the main driver for evaluating performance.  Companies report on a quarterly basis to the street, which fundamental analysts then feverishly work through the data to assess a company’s future growth potential.

Well, how long should you wait to evaluate your trading performance …yearly, monthly, daily?

The answer to this question is very simple.  Base your evaluation period on the number of trades placed and not by the amount of time passed.

Time is irrelevant in the world of trading.  Trading is one of the few areas in this realm, where the space-time continuum are of no relevance.

Those of us that have been trading for some time know that one-year’s stellar trading performance can lead to a 2-month binge of destruction, which can easily eradicate everything you’ve worked so hard to create.

The way to address the tracking of your performance is to create a set number of trades that you will evaluate against key performance metrics, which we will touch upon next.

You will need to identify the right number of trades for you to evaluate, but this number needs to be high enough that you have a decent sample set, but low enough where it prevents you from going on a destructive trading binge.

For me, that number is 10 trades.  This applies to both my swing trading and day trading activities.  On average, it will take me approximately 3 months to place 10 swing trades and about 4 days to place 10-day trades.  I only mention the time element so you can see how long it takes me to place that number of trades based on my trading style , but you can easily perform the same math in your head.

So, what is the number of trades you will use when evaluating your trading activity?

#2:  Identify Your Key Performance Metrics

Performance Metrics

I use the KISS method or Keep It Simple, Stupid (for those new to the term) for measuring my trading performance.   To that aim, I only care about the following two metrics:

This is a ratio of your profitable trades divided by your losing trades.  Over a 10 trade cycle, I would take, for example, $15,000 (winners)/$5,000 (losers), which would equal an R of 3.  This essentially translates to the fact I profit three times more than I lose.  You will want to measure R over every cycle.  There is no set minimum or maximum R value; however, you will want to track your performance over time and quickly identify when you are below your historical average.

• This is the lowest intraday dollar value of your account within a trading cycle. Most max drawdowns require a new high to take place in order to mark the drawdown.  I, however, feel this is not the right approach, because it could take you a series of trading cycles before you hit a new portfolio high.  I recommend that you determine how low your account has gone from the starting point of the cycle in percentage terms. For example, if I have a starting portfolio value of $100k for a 10-sprint cycle and my account value hits $80k, then my max drawdown was 20%.  Just like R, there is no hard and fast rule on maximum drawdown.  Over time, you should aim to reduce your drawdowns, as this will ultimately lead to a portfolio balance that continues pointing up and to the left, with very little pullbacks.

#3:  What Time of Day will You Trade?

For my day traders, I highly recommend you limit your trading activity.

For me, I trade from 9:50 am – 12:00 pm. Any trade activity occurring before or after this zone, I am purely a spectator on the sideline.

#4:  Define Your Trading Edge

Similar to the times of day you will trade; keep your trading edge down to one or two setups when starting out.  The more strategies you hope to master, the more difficult it will become to consistently make money in the market.

Below are the details of my trading edge:

• Early Range Breakouts
• High Volume
• Tight Spreads
• Consolidation prior to the breakout
• Only enter new positions between 9:50 am and 10:10 am

That’s it.  If you feel your list bubbling up to 20+ criteria, you will drive yourself crazy trying to respect all of your rules

#5: Identify Stocks to Trade

Develop a standard methodology for identifying plays. You will have to first ask yourself the question, what is my time horizon for this trade? Day traders will want to focus on stocks in the news, while long-term traders will want to focus on stocks that are developing new business models that show the potential for multi-year growth. Whatever your trading style, make sure you identify the plays that have the highest odds of profitability.

For day traders, you will want to focus on the market movers.  This provides you with the greatest opportunity for locating stocks that are trending hard with high liquidity.  Within TradingSim, our market movers component provides you the top list of gainers and losers in real-time.  This way you don’t have to navigate through hundreds of charts manually.

TradingSim – Market Movers

Once you have found a stock you like, you will need to add the stock to your watchlist, so you can keep an eye on the security.

TradingSim – Watchlist

#6:  Place Your Stop Loss

Stop losses are not a negative thing; they are what keep you in business over the long haul

My stop loss is once the position goes against me by 2%.  The 2% threshold is based on the volatility of the stocks I trade and may not be suitable for your trading style.  The point here is just to make sure you have a stop loss.  If you find your stop is consistently being hit, then you need to take a deeper look into the volatility of the stocks you are trading .

#7:  When to Exit

You have heard all the market wizards say, “Let your winners run”.  Well, once you figure out what that means please let me know.

The greed in you will prevent you from closing your winning trades, even after you hear that little voice in your head tell you the run has come to an end.  The way to avoid this scenario is to have a clear exit strategy.

Again, keep it simple.  The exit strategy should be as simple as when the stock crosses below a moving average or the VWAP.

If you would like more insight into my own exit strategy for swing trading please take a look at the article I wrote titled ‘ How to Let Your Winners Run – 7 Tips for Success’ .

#8: How Much Money Can I Use per Trade?

Without money management, you will not stand a chance of making it in the business of trading.  For me, the amount of money I can use per trade largely depends on how well I am performing.  If I am going through a rough patch and my key performance indicators are down, then I use less money to minimize the damage to my account balance.

However, for keeping it simple in this article, I only use 10% of my available day trading buying power per trade.  For example, if I have $250,000 cash, this would translate to $1,000,000 in day trading buying power; hence, I would use $100,000 per trade.

#9:  When to Take Breaks

Take a Break from Trading+

This is something you will not see in other trading plans on the web.  When will you take a break from trading?  Sounds like a no-brainer, but you will be surprised how many traders I talk to that never take breaks.  Whether the trader has just had the best series of trades or an all-out massacre of their account, the vast majority of traders just keep placing trades, day after day.

I take a break after I have placed 100 trades.  I will take a day off just to give myself time to relax and reflect on my trading activity.  You could be asking yourself; couldn’t I just take a break on the weekend or over federal holidays?  Very true, but taking a self-imposed break goes back to discipline and exercising my control of the market.  While the market is always there, I don’t always have to respond to her every move.

#10: Limit Up/Limit Down

The major exchanges and prop firms think in terms of limit up and limit down.  This concept of curbs in was originally created after the 1987 crash and like everything else has become so complicated, it’s not worth trying to explain in less than 5,000 words.

For prop firms, their risk management rules will closely monitor how much a trader is up or down for the day.  Once a trader reaches a particular extreme based on their past trading performance, this trader is not allowed to place any additional trades for the day.

Why do we as traders not think in terms of limit up or limit down?

For me, if I lose 2% of my trading capital at any point of the day, I need to exit all positions and go fishing.  Conversely, if I make 7.5% of my trading portfolio in one day, it is time to go fishing.

Have you ever thought in terms of limit up/limit down?  What are your limit up/limit down targets?

Sample Trading Plan

Now that we have covered the 10 inputs of a trading plan, below is a sample trading plan for your review.  While this is a sample trading plan for day trading, you can simply change the parameters and apply them to any trading period for success.

Beach Photo by Trish Hartmann

Time Photo by Sean MacEntee

Performance Metrics by Alan O’Rourke

Tea Cups by Clyde Robinson

Tags: Day Trading Basics

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Best Options Trading Platforms for Investors in 2024

• Best Options Brokers
• Options Trading
• Stocks vs Options
• Stock Options
• Options Simulators
• Options Trading Books
• Puts vs Calls

Among Benzinga readers, popular choices for best options trading platforms with strong mobile apps include Webull and Interactive Brokers .

As options trading gains traction, brokers are increasingly offering mobile app access. While mobile options trading presents its complexities compared to desktops, the right platform and practice can empower you to trade on the go. If mobile options trading is a priority, consider opening an account with one of these top-rated platforms.

• Quick Look at the Best Options Trading Platforms:
• Best for Stock Market News: Benzinga Pro
• Best for Global Traders: Interactive Brokers
• Best for Mobile Users: Plus500
• Best for Traders of All Levels: moomoo
• Best for Trading Ideas: Public.com
• Best for Intermediate Investors: Webull
• Best for Beginners: Robinhood

1. Best for Stock Market News: Benzinga Pro

2. best for global traders: interactive brokers, 3. best for mobile users: plus500, 4. best for traders of all levels: moomoo, 5. best for trading ideas: public.com, 6. best for intermediate investors: webull, 7. best for beginners: robinhood, how to choose, best options strategy.

• Benzinga Options Newsletter 

Entering the Options Market

Frequently asked questions.

News is the most critical part of the stock market as news items come out all day, every day. When investors hear the news—or even get a glimpse of what’s to come—they act. These actions impact the markets, and there’s no better way to make wise investing decisions than to gain access to stock market news as soon as it happens.

Benzinga Pro provides you with the market news you need, the Audio Squawk broadcast each day, charts, insights, tips, indicators and much more. Signing up today allows you to start researching each new investment, ensuring that you will make the most of each options trade while having even more information for the next investment.

• Benzinga Pro offers news, analysis, and potential trade signals specifically focused on options trading. This can be helpful for identifying opportunities and understanding market sentiment.
• Stay up-to-date on options-related news and market movements with real-time data and customizable alerts.
• Track upcoming earnings reports that can significantly impact options prices.
• Connect with other options traders and discuss strategies in real-time (may require an additional subscription).
• Access to expert insights and analysis can be a learning resource for options traders of various experience levels.
• You'll need a separate brokerage account to execute trades based on their insights.
• The platform has a monthly subscription fee, which might be a burden for some options traders.

WIth IBKR , options commissions range from USD 0.15 to USD 0.65 per US options contract.

They have a powerful, award-winning trading platform and tools available on desktop, mobile and web. You can view market data, positions and trade multiple asset classes and products side-by-side on a single screen.

You can stay on top of your portfolio and the markets wherever you are. The IBKR Mobile app includes everything you need to trade and manage your options on-the-go.

The OptionTrader displays market data for the underlying, allows you to create and manage options orders including combination orders, and provides the most complete view of available option chains, all in a single screen.

Robust platform with a wide range of options tools, including complex order types, greeks analysis, strategy builders, and advanced charting.

• Gain deep insights with real-time data, historical analysis, and customizable option chains.
• Trade options contracts on a vast array of underlying assets across numerous exchanges.
• Competitive margin rates for options trading, allowing for leveraged positions.
• Test and refine your options strategies before risking real capital.
• This can be overwhelming for beginners due to its extensive features and user interface.
• Focuses on tools over extensive instructional content.
• Commission fees apply, though generally lower for active traders. This can be a drawback for occasional options traders.

Plus500  is a global multi-asset fintech group that operates trading platforms globally, offering a range of trading products including CFDs, Share dealing, and Futures trading (US).

Highlights of this platform include:

• Quick onboarding
• Simplified mobile trading
• Easy-to-use platform
• Offers 2800+ CFDs, 2700+ Shares, and a variety of Futures (Metals, Crypto, Agriculture, Forex, Interest rates, Energy, Equity Index)
• Free deposits and withdrawals
• $100 minimum
• 0.7% currency conversion fee per transaction, when the currency in your account is different from those traded

Because Plus500 doesn’t charge a commission and only profits on spreads, you save money and don’t have to worry about overpriced fees. If you’re a beginner, there are insights, the Trading Academy and webinars you can check out on YouTube . You can jump into Plus500, make the most of your expertise, build your portfolio and quickly turn a profit.

• Only charges spreads
• Low minimums
• Remember that CFDs can be quite risky and you should manage your portfolio accordingly

Moomoo is an award-winning platform for options traders. Its user-friendly design makes it easy to navigate, while providing powerful and extensive analysis capabilities. Stock options trading on moomoo is commission-free with no contract fees, along with free features like the options calculator, unusual activity log, options rankings andmore.

Other unique features of moomoo include:

• Real-time Level 2 stock and options market data
• Advanced technical indicators and charting 
• Smart orders
• Full extended trading hours from 4 AM to 8 PM EST
• Multi-market quotes
• Low fees including $0 commission on U.S. Stocks and options and $0 options contract fees
• Cash sweep program with 5.1% APY along with a 3.0% boost for qualified users

New features include:

• New User Deposit Bonus: Deposit $100 and receive 7 fractional shares of a star-stocked bundle ("Magnificent 7" at $5 each)
• New User Transfer Bonus: Get a 1.5% cashback on your initial transfer amount (up to $300)
• Referral Bonus: Invite a new user who deposits $100 or transfers in $1,000, and receive 7 fractional shares of a star-stocked bundle ("Magnificent 7" at $5 each)
• Options commissions/fees: $0 per contract
• Plus, $0 commission on U.S. stocks and ETFs
• Top-notch charting software for both its mobile and desktop platforms
• Level 2 data to help you make wiser investment decisions
• Powerful and customizable research tools 
• Extended trading hours and syncing across all devices to fit into busy lifestyles
• 24/7 customer service available via live chat, and phone support during trading days
• Does not support fractional stocks and Crypto

Public.com makes it possible for you to diversify your investments to a great extent, including stocks , ETFs , crypto and alternative assets, and it does all that from a very convenient mobile app. Users on the app get:

• Earn $0.18 per options contract traded
• A potential 50% rebate on all options transactions (meaning you get to earn 50% of the revenue that Public.com makes)
• The “education mode” that allows beginners to learn safely
• An educational section that will teach you all about options, alternative assets and more, including video content for visual learners

Moreover, Public.com onboards you properly so that you get the correct level of options access when you are onboarded, meaning that you can start on your level and grow organically. Look at the Options Hub at Public.com to learn more.

• Public.com potentially allows fractional share trading for options contracts, making them more accessible to investors with limited capital.
• Public.com’s user-friendly design might be adapted to make basic options strategies easier to understand and execute.
• Does not offer the full range of options order types or advanced tools needed by experienced options traders.
• The platform's focus on simplicity might limit support for complex options strategies.

With over 11 million users worldwide, Webull has quickly grown into one of the market’s largest stock and options trading platforms. Unlike most brokers, Webull doesn’t charge any commission on its trading — including options trading.

Webull’s mobile app is comprehensive, allowing you to place options trades, track your portfolio over time, practice with a paper trading account and much more. Its mobile app also offers a number of unique features that set it apart from other brokers, including:

• Mobile voice commands: Place orders and perform research using voice commands like buy, sell and search without lifting a finger.
• Advanced order options: Webull has recently introduced more advanced order types, including stop-loss orders and one-cancels-the-other (OCO) orders to its mobile platform.
• Advanced market data: With a Webull subscription, you can access Level 1 and Level 2 market data — no matter where you are.

The Webull app is available as a free download for Apple and Android users. Windows desktop users may also enjoy the Webull desktop app, which makes it easier to execute trades quickly. In the future, Webull is working to continue expanding options order types and pursue Level 3 options choices. Options trading is available through Webull from 9:30 a.m. to 4 p.m. EST every trading day. 

• Webull offers commission-free options trades, making it a cost-effective option for active traders.
• Webull boasts a user-friendly mobile app platform, simplifying options trading for beginners and experienced users alike.
• Despite its user-friendliness, Webull offers a decent selection of advanced options tools, including greeks analysis and strategy builders.
• Webull allows users to practice options trading strategies with a paper trading account before risking real capital.
• Qualified users can access margin for options trading, potentially amplifying returns (but also magnifying losses).
• Compared to some competitors, Webull's research and educational resources specifically for options trading might be lacking.
• There's an application process to unlock options trading on Webull, which assesses your investment experience and risk tolerance.

If you’re a new investor, it’s easy to become overwhelmed by the sheer number of trading and charting options you’ll see with most brokerages. Investors looking for a simpler way to begin trading options may enjoy Robinhood ’s no-frills mobile platform. It's one of the best options trading platforms for beginners.

Like stock and ETF trading, buying and selling options is incredibly simple when you use Robinhood’s platform. Simple browse currently available options and click on a potential order to see what exactly you’re buying and how much it will cost you. Level 2 self-directed options strategies and Level 3 options orders (like credit spreads) are currently available on both desktop and mobile formats.  

Like Webull, Robinhood has ditched option fees in favor of commission-free trading. Robinhood has no commissions on options purchases or sales, no per-contract fees and no assignment fees. Though you’ll need a Robinhood Gold account to access more in-depth market research (a subscription costs $5 per month) you don’t need to be a Robinhood Gold member to access options trading.

Robinhood’s mobile app is available as a free download for both Apple and Android devices. 

• Robinhood, like Webull, offers commission-free options trades, making it an attractive choice for cost-conscious options traders.
• It is known for its clean design and ease of use, potentially appealing to new options traders.
• Provides some essential options tools like basic order types and basic Greeks analysis.
• Robinhood allows investing in fractional shares, which can be helpful for options strategies involving spreads.
• Similar to Webull, qualified users can access margin for options trading, potentially magnifying returns (but also magnifying losses).
• Robinhood is known for its lack of robust research tools and educational resources, which can be critical for options traders.
• It offers a more basic selection of options tools compared to some competitors, lacking advanced strategy builders or complex order types.
• It primarily focuses on stocks and options, lacking features like advanced charting or complex order routing found on some platforms.

Mobile App Usability: Pick a platform with a user-friendly and well-reviewed mobile app for options trading features.

Experience Level: Beginner platforms prioritize ease of use and education, while advanced platforms offer powerful tools and in-depth analysis.

Trading Needs: Consider features like order types, option strategies supported, and research tools relevant to your approach.

Fees & Commissions: Options trading often incurs fees, so compare commission structures, and margin rates between platforms and find one that fits your budget.

The best options trading strategy for you will vary depending on your personal risk tolerance, your trading style and the individual options you want to trade. Let’s take a look at 2 of the most commonly used options trading strategies for beginners to help you get started when using one of the best options trading apps.

• Covered call: A covered call is a common trading order used by investors who already own a select number of stocks and who believe that prices will remain stagnant or go down. When you sell a covered call, you collect a premium on stocks you own while waiting for the next increase in price. Selling covered calls can be risky if the asset you hold increases in value.
• Long call: A long call is one of the most basic types of options orders. If you believe that a stock is going to increase in price over time, you can “lock in” the price of the stock now by purchasing a call option. If the stock does increase in price, you can execute your option and immediately sell the order, taking a profit based on the differences in price. If the price of the stock decreases, you can choose not to execute the option.

Benzinga Options Newsletter 

Researching the best options trading platforms is only a piece of the overall “puzzle” that is the options market. A comprehensive options trading strategy and a reliable research method are both absolutely crucial if you want to become a profitable options trader. However, with so much information available, how can you possibly separate investing fact from fiction?

Enter Benzinga Stocks To Watch, your daily source for hand-selected options and stock opportunities delivered straight to your inbox before the market opens. Benzinga Stocks To Watch is written by the internet’s top investing researchers, news correspondents and analysts — so you can rest with the peace of mind knowing you’ll always have access to reliable, professional investing advice.

After you’ve found the best options trading apps for you, you’ll want to take some more time researching the options market before you place your first call or put order. Subscribe to an options newsletter, familiarize yourself with some of the most common options trading terms and practice using a demo account before you begin investing. Just a few days of research can potentially compound your profits when you enter the market.  

Is option trading worth it?

Options trading offers potentially high returns but comes with high risk. It’s complex and not for beginners. Stick to stocks if you’re new, but options can be a powerful tool for experienced, risk-tolerant investors.

How can I practice trading options?

You can open an account and do paper trading at brokerage firms like TD Ameritrade or Webull.

What are the best options trading platforms for mobile traders?

You’ll find a list of Benzinga’s recommended options trading apps above.

About Sarah Horvath

Sarah Horvath is a seasoned financial writer with a specialization in investing content. With a keen eye for market trends and a deep understanding of investment strategies, Sarah delivers insightful and informative articles tailored to investors. Her dedication to providing valuable content empowers readers to make informed decisions in the dynamic world of finance. Sarah’s expertise extends across various investment vehicles, including stocks, bonds, cryptocurrencies, and real estate. Whether analyzing market movements, evaluating investment opportunities, or demystifying complex financial concepts, Sarah’s writing is characterized by clarity, accuracy, and actionable insights. Through her engaging content, Sarah strives to educate and guide investors on their journey towards financial success.

Trading Business Plan Template

Written by Dave Lavinsky

Trading Business Plan

Over the past 20+ years, we have helped over 500 entrepreneurs and business owners create business plans to start and grow their trading companies.

If you’re unfamiliar with creating a trading business plan, you may think creating one will be a time-consuming and frustrating process. For most entrepreneurs it is, but for you, it won’t be since we’re here to help. We have the experience, resources, and knowledge to help you create a great plan.

In this article, you will learn some background information on why business planning is important. Then, you will learn how to write a trading business plan step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is a Trading Business Plan?

A business plan provides a snapshot of your trading company as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Trading Company

If you’re looking to start a trading company or grow your existing company, you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your trading business to improve your chances of success. Your business plan is a living document that should be updated annually as your company grows and changes.

Sources of Funding for Trading Companies

With regards to funding, the main sources of funding for a trading company are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for trading companies.

Finish Your Business Plan Today!

How to write a business plan for a trading company.

If you want to start a trading business or expand your current one, you need a business plan. The guide below details the necessary information for how to write each essential component of your trading business plan.

Executive Summary

Your executive summary provides an introduction to your trading business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of trading company you are running and the status. For example, are you a startup, do you have a trading business that you would like to grow, or are you operating a chain of trading companies?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the trading industry.
• Discuss the type of trading business you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

Company Overview

In your company overview, you will detail what type of trading business you are operating.

For example, you might specialize in one of the following types of trading businesses:

• Retail trading business: This type of business sells merchandise directly to consumers.
• Wholesale trading business: This type of business sells merchandise to other businesses.
• General merchandise trading business: This type of business sells a wide variety of products.
• Specialized trading business: This type of business sells one specific type of product.

In addition to explaining the type of trading business you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, the number of products sold, and reaching $X amount in revenue, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the trading industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the trading industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section:

• How big is the trading industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your trading business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: individuals, schools, families, and corporations.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of trading business you operate. Clearly, individuals would respond to different marketing promotions than corporations, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

Finish Your Trading Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other trading businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes other types of retailers or wholesalers, re-sellers, and dropshippers. You need to mention such competition as well.

For each such competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as

• What types of customers do they serve?
• What type of trading business are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you make it easier for customers to acquire your product or service?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a trading company, your marketing strategy should include the following:

Product : In the product section, you should reiterate the type of trading company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you sell jewelry, clothing, or household goods?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your plan, you are presenting the products and/or services you offer and their prices.

Place : Place refers to the site of your trading company. Document where your company is situated and mention how the site will impact your success. For example, is your trading business located in a busy retail district, a business district, a standalone facility, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions : The final part of your trading marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in local papers, radio stations and/or magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Operations Plan

While the earlier sections of your plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your trading business, including answering calls, scheduling shipments, ordering inventory, and collecting payments, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to acquire your Xth customer, or when you hope to reach $X in revenue. It could also be when you expect to expand your trading business to a new city.  

Management Team

To demonstrate your trading business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing trading businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act as mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a trading business.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.  

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you charge per item or per pound and will you offer discounts for bulk orders? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.  

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your trading business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.  

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and traders don’t realize is that you can turn a profit but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a trading business:

• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your facility location lease or a list of your suppliers.  

Writing a business plan for your trading business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will understand the trading industry, your competition, and your customers. You will develop a marketing strategy and will understand what it takes to launch and grow a successful trading business.  

Trading Business Plan Template FAQs

What is the easiest way to complete my trading business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily write your trading business plan.

How Do You Start a Trading Business?

Starting a trading business is easy with these 14 steps:

• Choose the Name for Your Trading Business
• Create Your Trading Business Plan (use a trading business plan template or a forex trading plan template)
• Choose the Legal Structure for Your Trading Business
• Secure Startup Funding for Trading Business (If Needed)
• Secure a Location for Your Business
• Register Your Trading Business with the IRS
• Open a Business Bank Account
• Get a Business Credit Card
• Get the Required Business Licenses and Permits
• Get Business Insurance for Your Trading Business
• Buy or Lease the Right Trading Business Equipment
• Develop Your Trading Business Marketing Materials
• Purchase and Setup the Software Needed to Run Your Trading Business
• Open for Business

What is a Trading Business?

There are several types of trading businesses:

• Retail trading business- sells merchandise directly to consumers
• Wholesale trading business- sells merchandise to other businesses
• General merchandise trading business- sells a wide variety of products
• Specialized trading business- sells one specific type of product

Don’t you wish there was a faster, easier way to finish your Trading business plan?

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s business plan advisors can give you a winning business plan.

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Trading Business Plan

Mar.29, 2024

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Table of Content

According to a report, 13% of day traders maintain consistent profitability over six months, and a mere 1% succeed over five years. This is primarily due to inadequate planning and undercapitalization. A well-crafted trading business plan can help you avoid these pitfalls, and this article will guide you.

In this article, you’ll learn:

• The current trends and growth forecasts in the stock trading industry
• A breakdown of the costs involved in starting a trading company
• The key components of a trading business plan (with a trading business plan example)
• Strategies for securing funding and overcoming the barriers to entry

By the end of this article, you’ll understand what it takes to create a business plan for an investment company , positioning your trading business for long-term success in this lucrative but highly competitive industry.

Pros and Cons of Trading Company

Let’s explore the pros and cons associated with running a trading company before diving into the specifics of a trading site business plan. Understanding them will help you make informed decisions:

• Potential for significant profits.
• Flexibility in terms of time and location.
• Opportunity for continuous learning and skill development.
• High risk due to market volatility.
• Emotional stress and psychological pressure.
• Requirement for constant vigilance and discipline.

Trading Industry Trends

Industry size and growth forecast.

According to a report , the global stock trading and investing applications market size was at around $37.27 billion in 2022 and projects to grow at a CAGR of 18.3% from 2023 to 2030 (Source: Grand View Research). The following factors drive this growth:

• Increasing internet penetration
• Rising disposable income
• Growing awareness of investment opportunities.

(Image Source: Grand View Research)

The Services

As per our private equity firm business plan , a stock trading business offers various services, including:

• Facilitating Trades on behalf of clients
• Algorithmic trading services to automatically execute trades
• Market Insights (research reports, market analysis, and economic forecasts)
• Technical and Fundamental Analysis (price charts, historical data, and company fundamentals)
• Investment Recommendations
• Seminars and Webinars
• Online Courses
• Demo Accounts
• Portfolio Diversification
• Stop-Loss Orders
• Hedging Strategies
• Direct Market Access (DMA)
• Global Market Access
• Trading Platforms
• Mobile Apps
• High-Frequency Trading (HFT)
• Legal and Compliance Services
• Educate clients about Risk Disclosure

How Much Does It Cost to Start a Trading Company

According to Starter Story, you can expect to spend an average of $12,272 for a stock trading business. Some key startup costs include:

How Much Can You Earn from a Trading Business?

Earnings in the trading business can vary significantly and depend heavily on:

• Trading strategy and approach
• Market conditions and volatility
• Risk management techniques
• Capital allocation and leverage

While specific income figures are difficult to predict due to these factors. However, here are some statistics showing the earning potential of a stock trading business:

• According to Investopedia, only around 5% to 20% of day traders consistently make money.
• According to Indeed Salaries, the average base salary for a stock trader in the U.S. is $80,086 per year.
• 72% of day traders ended the year with financial losses, according to FINRA.
• Among proprietary traders, only 16% were profitable, with just 3% earning over $50,000. (Source: Quantified Strategies)

What Barriers to Entry Are There to Start a Trading Company

Barriers to entry into the stock trading business include:

• Regulatory Requirements: Obtaining necessary licenses and registrations from governing bodies like the SEC and FINRA is a complex and time-consuming process.
• Capital Requirements: Trading activities require significant capital to manage risks and leverage opportunities, which can be a substantial challenge for new or small firms.
• Technological Expertise: Developing or acquiring sophisticated trading platforms, algorithms, and data analysis tools is costly and requires specialized expertise.
• Market Knowledge and Experience: Gaining in-depth knowledge and practical experience in the complex and dynamic financial markets takes years of dedicated study.
• Competitive Landscape: Breaking into the highly competitive trading industry dominated by established firms and well-funded proprietary trading desks is challenging for new entrants.

You can overcome these barriers by developing unique strategies, leveraging innovative technologies, and offering competitive and specialized services to differentiate yourself in the market. Do check our financial advisor business plan to learn more.

Creating a Trading Business Plan

A well-researched stock trading business plan is crucial to start a trading business. A general trading company business plan is a comprehensive document that defines your goals, strategies, and the steps needed to achieve them. It helps you stay organized and focused and increases your chances of securing funding if you plan to seek investors or loans.

Steps to Write a Trading Business Plan

You can use a business plan template for a trading company or follow these steps to prepare a business plan for a personal trading business:

Step 1: Define Your Goals and Investment Objectives

Step 2: Conduct Market Research

Step 3: Develop Your Trading Strategy

Step 4: Establish Your Business Structure

Step 5: Develop a Financial Plan

Step 6: Outline Your Operational Procedures

Step 7: Create a Marketing and Growth Strategy

Step 8: Implement Risk Management

Step 9: Create an Exit Strategy

What to Include in Your Trading Business Plan

Executive summary, company overview.

• Market Analysis
• Trading Strategy and Risk Management
• Operations and Technology
• Financial Projections
• Management and Organization
• Appendices (e.g., research, charts, legal documents)

Here’s an online trading business plan sample of ABC Trading:

ABC Trading, a recently established stock trading firm, provides online trading services to individuals and institutional investors. Key highlights of our business include:

• Vision – Becoming a leading online trading platform with a wide range of trading products and services.
• Values – Our core focus is innovation, excellence, integrity, and customer satisfaction.
• Target market – Tech-savvy and risk-tolerant investors looking for alternative ways to invest their money and diversify their portfolios.
• Revenue model – Commissions and fees for each trade, as well as subscription fees for premium features and services.
• Financial goal – Break even in the second year of operation and generate a net profit of $1.2 million in the third year.

ABC Trading is seeking $500,000 seed funding to launch its platform, acquire customers, and expand its team.

Company Name: ABC Trading

Founding Date: January 2024

Location: Delaware, USA

Registration: Limited Liability Company (LLC) in the state of New York

Regulated By: Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)

Our team comprises seasoned professionals with diverse finance, mathematics, computer science, and engineering backgrounds.

Marketing Plan

Marketing Strategy: We aim to leverage online channels, such as social media, blogs, podcasts, webinars, and email newsletters, to create awareness, generate leads, and convert prospects into customers.

Marketing Objectives:

• Reach 100,000 potential customers in the first year of operation
• Achieve a 10% conversion rate from leads to customers
• Retain 80% of customers in the first year and increase customer lifetime value by 20% in the second year

The customer profile of ABC Trading includes the following characteristics:

• Age: 25-65 years old
• Gender: Male and female
• Income: Above $100,000 per year
• Education: Bachelor’s degree or higher
• Occupation: Professionals, entrepreneurs, executives, or retirees
• Location: US or international
• Trading experience: Intermediate to advanced
• Trading goals: Income generation, capital appreciation, risk diversification, or portfolio optimization
• Trading preferences: Stocks, options, or both
• Trading style: Technical, trend following, or volatility trading
• Trading frequency: Daily, weekly, or monthly
• Trading risk: Low, medium, or high

Marketing Tactics:

• Create and distribute engaging and informative content on social media platforms
• Offer free trials, discounts, referrals, and loyalty programs
• Collect and analyze customer feedback and data to improve and personalize the customer experience
• Partner with influencers, experts, and media outlets in the trading and finance niche

Marketing Budget:

We will allocate $10,000 for our marketing campaign, which we will use for the following purposes:

Operations Plan

ABC Trading’s operations plan ensures the smooth and efficient functioning of the company’s platform and services and compliance with the relevant laws and regulations.

Operation Objectives:

• Maintain a 99% uptime and availability of the company’s platform and services
• Ensure the security and privacy of the company’s and customers’ data and funds
• Provide timely and professional customer support and service

Operation Tactics:

• Use cloud-based servers and services
• Implement encryption, authentication, and backup systems
• Hire and train qualified and experienced customer service representatives and technicians
• Monitor and update the company’s platform and services regularly
• Follow the best practices and standards of the industry and adhere to the applicable laws and regulations

Operation Standards:

Financial Plan

ABC Trading’s financial plan is to provide a realistic and detailed projection of the company’s income, expenses, and cash flow for the next three years, as well as the key financial indicators and assumptions that support the projection.

Financial Objectives:

• Achieve a positive cash flow in the second year of operation.
• Reach a break-even point in the second year of operation.
• Generate a net profit of $1.2 million in the third year of operation.
• Maintain a healthy financial ratio of current assets to current liabilities of at least 2:1.

Financial Assumptions:

• Launch its platform and services in the first quarter of 2024
• Acquire 10,000 customers in the first year, 20,000 customers in the second year, and 30,000 customers in the third year
• Average revenue per customer will be $50 per month, based on the average number and size of trades and the subscription fees
• Average operating expense per customer will be $10 per month, based on the average cost of salaries, rent, utilities, marketing, and legal fees
• Pay a 25% tax rate on its net income
• Reinvest 50% of its net income into the company’s growth and development

Projected Income Statement:

Projected Cash Flow Statement

Projected Balance Sheet

Fund a Trading Company

To successfully establish and operate a trading company, raising funds to finance daily operations and business expansion is crucial. There are different ways with their advantages and disadvantages:

1. Self-funding (Bootstrapping)

Self-funding, also known as bootstrapping, is when the founder or owner of the trading company uses their own personal savings, family business ideas , assets, or income to finance the business. This is the most common and simplest way to fund a trading company, especially in the early stages.

• Complete ownership and control
• Flexibility in decision-making
• Potential for higher long-term returns
• Limited access to capital
• Personal financial risk
• Slower growth potential

2. Debt Financing

Debt financing involves borrowing money from lenders, such as banks, credit unions, or microfinance institutions, to fund the trading company’s operations. The borrowed funds must be repaid with interest over a specified period.

• Retain ownership and control
• Potential tax benefits from interest deductions
• Disciplined approach due to repayment obligations
• Debt burden and interest payments
• Collateral requirements and personal guarantees
• Difficulty in securing financing for startups

3. Angel Investors

Angel investors are wealthy individuals who invest their own money into early-stage or high-potential trading companies in exchange for equity or convertible debt. Angel investors typically provide smaller funding than venture capitalists and offer mentorship, guidance, and access to their network.

• Access to capital and industry expertise
• Potential for additional mentorship and guidance
• Lower risk compared to traditional investors
• Dilution of ownership and control
• Potential for conflicting visions and expectations
• Limited resources compared to larger investors

4. Venture Capital (VC) Funding

Venture capital firms are professional investment firms that provide capital to high-growth startups in exchange for equity ownership. They typically invest large sums of money and are active in the company’s management and strategic direction.

• Access to substantial capital for growth
• Expertise and industry connections from the VC firm
• Validation and credibility for the business
• Significant dilution of ownership and control
• Intense pressure for rapid growth and return on investment

Depending on your business model, goals, and needs, you may also consider other options, such as grants, subsidies, partnerships, etc. Ensure to check for relevant documents, like the hedge fund private placement memorandum . The best way to fund your trading company is the one that suits your situation and preferences.

OGSCapital: Your Strategic Partner for Business Success

At OGSCapital, we specialize in professional business plans that empower startups, established companies, and visionary entrepreneurs. With over 15 years of experience, our seasoned team combines financial acumen, industry insights, and strategic thinking to craft comprehensive plans tailored to your unique vision. Whether you’re seeking funding, launching a new venture, or optimizing your existing business, we’ve got you covered.

If you have any further questions regarding how to write a business plan for your trading business, feel free to contact us. Our team at OGSCapital is here to support you on your entrepreneurial journey. You can also check our hedge fund business plan sample here.

Download Trading Business Plan Template in PDF

Frequently Asked Questions

What does a trading business include?

A trading business involves trading stocks and other financial instruments under a legal business structure. It includes:

• Market analysis
• Trading strategy
• Risk management

How does a trading company work?

A stock trading company facilitates the buying and selling of stocks (shares) on behalf of investors. These companies operate within stock exchanges, executing trades based on specific trading strategies.

OGSCapital’s team has assisted thousands of entrepreneurs with top-rate business plan development, consultancy and analysis. They’ve helped thousands of SME owners secure more than $1.5 billion in funding, and they can do the same for you.

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How to Trade Options Like a Business

• Small Business
• Money & Debt
• Small Business Financing Options
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Taxes on Stock Market Option Losses

How to day trade at home while self-employed, how to trade stocks as a home business.

• Exercising Stock Options Vs. Selling on the Open Market
• Differences Between Interest Rate Swaps & Credit Default Swaps

Trading stock options offers the chance to profit handsomely as options can control up to 100 shares of stock per option while the risk is limited to just the cost of the option. Few trading instruments can offer that kind of leverage with limited risk, yet most aspiring option traders fail to profit because they don't know how to trade options like a business. Once you implement a few steps, you're on your way to trading like a professional.

Find an experienced option broker by scanning the Internet and conducting interviews. Ask how long the broker has been dealing in options. Ask several questions such as "Have you ever traded options before?" and "Do you know the difference between a Calendar Spread and a Ratio Backspread?" Having an experienced options broker to work with in a volatile market is a valuable asset.

Select a good trading platform that integrates your price charts, brokerage account, and buy/sell features directly to your broker. For example, Tradestation.com is fully integrated platform that integrates all the features mentioned previously. Spend time learning their different features and how to use them proficiently.

Open a option trading account with an experienced brokerage. Some brokerages will let you open an account for as little as a $1,000, but it will vary from broker to broker. On an average, $5,000 is the average to open a option trading account, but the broker will probably limit your account to basic option trades rather than the more advanced strategies like naked put selling, which carries a lot of risk.

Set up your price charts to track the underlying stock on at least one of your price charts while having a separate screen for the stock symbols. Also, have a separate screen for option quotes on the stock you are tracking. Some trading platforms will let you link all the screens together so that as you click through the different stock symbols it will automatically pull up the price chart as well as the option quotes.

Write out a sound trading plan that details your trading approach and a sound money management method. A solid trading plan will detail the type of trades you will take, the type of trades you will not take, trade management, and risk control.

• Spend the most time detailing your trading plan. This is your "business plan" if you want to learn how to trade options like a business. This is the cornerstone that you will build your option trading career on if you take the time to detail it the right way.
• Most aspiring option traders fail to write out a detailed trading plan and typically fail at trading stock options successfully. Or worse, they fail to complete it in its entirety by failing to detail a proper money management method in its outline. Risk control and timing of your trades are going to be the most important rules you want to include in your trading plan to learn how to trade options like a business and trade profitably.
• TheBusinessEdition.com: A Profitable Option for Option Trading

Billy Williams has been writing since1988 on a variety of topics but focused in business/finance. WIth over 2 decades of experience in banking, real estate, business development, sales, and trading the stock market as well as having been published in "Futures Magazine." Williams holds a Bachelor of Arts in finance from the University of Texas Pan American.

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The Ultimate Trading Plan Template

A proper Trading Plan is essential to your success as a trader.

Anyone thinking of starting a business wouldn’t begin without a plan, if they do, they probably won’t like the end results. Day trading is no different than any other business.

As they say, “If you fail to plan, then you’ve already planned to fail.”

You’re about to learn the same process I’ve used for the past 20 years. It’s also what I currently teach our students.

After completing this post, you should be confident in your ability to write a rock solid trading plan. To speed up the process, I provided a link to our Trading Plan template at the end.

Let’s get into it…

What is a Trading Plan?

A Trading Plan defines a trader’s goals, expectations, routines, risk management, and trading strategies. A successful plan will include the logic underlying the strategies and processes a trader deploys.

Elite traders already know they have won the game before placing a single trade for two reasons.

First, they have a well defined edge that’s repeatable. 

The primary goal of your trade plan is to precisely define your processes and strategies, with the end of goal of creating a repeatable process.

Second, elite traders fully understand there is a random distribution between wins and losses for any given set of variables that define an edge , resulting in flawless execution.

First, you need to focus on developing your process. You will work on developing the mindset of winning trader and the ability to think in probabilities (versus P&L) when you begin backtesting and simulated trading.

A simple google search and you will find endless styles and formats for trade plans.

For me, my plan acts as the CEO of my business. defining the big picture items such as rules, processes, routines, analytics, theories and goals.

A lot of traders include their trading strategies in their trade plan, but I prefer defining them in a separate Playbook. I do this for several reasons…

First, I’ve been trading for over two decades, in that time I’ve developed and traded a lot of different strategies.

I’ve always found it beneficial to have all my strategies broken down individually. This becomes extremely valuable as you get more into strategy development.

A lot of the strategies I’ve built were a result of combining the different tools, theories and processes from other strategies I’d previously traded in my career.

Second, I think a Trade Plan that focuses solely on the macro level picture will help you in your review.

When I began my career I was surrounded by elite traders every day. My mentor and the owner’s of the firm kept me in line and made sure I was following their processes. If I was trading poorly, they held me accountable.

Accountability Partner

If you haven’t already chosen someone as an accountability partner, it should be the first thing you do after reading this post.

Your trade plan will be shared with your Accountability Partner in order to review your progress.

Your playbook will be used in strategy development and shared with your peers for trade review.

Obviously your accountability partner can play both roles if they have a trading background.

However, it’s more important your accountability partner is someone your close to that is committed to helping you achieve goals.

A good accountability partner will call you out and question you when you’re not following your rules, and due to your respect for the individual it should sting a little.

For the remainder of this post we’re going to focus solely on your trade plan.

Once you’ve completed your plan, I have you covered on your playbook as well. (link to Playbook Guide at the end)

Why You Need a Trading Plan

Good trading should be effortless. The preparation is where the hard work comes.

Imagine two runners, on one hand someone completely out of shape trying to run 1 mile in 10 minutes versus a world-class runner. The process looks effortless for the world-class runner, and it is. They put all of the hard work into their preparation, resulting in a process that is effortless.

Your Trade Plan and Playbook are part of your preparation.

The objectivity and clarity that a solid plan provides is essential in a market that requires split second decision making to capitalize on opportunities.

It will empower you to trade objectively, with confidence and less emotional involvement.

Let’s take a look at some categories you will want to include in your plan.

Trading Plan Outline

This outline is a strong base to get you started. You can use this plan for all markets, including Stocks, Forex, Futures, Options, and/or Crypto.

Remember, there’s no formal rules so get creative!

1. Premarket Routine

Developing routines in our lives helps us to stay on track and reach goals. 

By analyzing our current routines and making adjustments, we’re able to form new habits. A skill that is rewarded in this business.

Here’s a great video on the importance of simple routines, especially when starting your day.

Try it, what do you have to lose?

Outline the tasks you will perform prior to trading each day.

Examples: -Read trading plan -Review a personal journal entry twice a week and reflect -Read prior day’s trade journal -Review prior day’s trades -Check economic numbers -Read playbook -Mirror reflection -Pre-market Analysis

2. Visualization/Mantras

Visualization and Mantras are great tools to include in your morning routines.

Examples: -Visualize yourself taking a trade and going through all the steps outlined in your Playbook -I accept that I have no idea what the outcome of any individual trade will be -I accept that today could be a negative day -I accept the loss of my next  trade financially -I accept I will get stopped out on trades that reverse and rip in the direction of the setup

3. Hard Rules

You want to get very specific with some macro rules for your trading business. They should be reviewed with your accountability partner on a monthly basis at minimum. I recommend meeting weekly or daily if you’re a new trader or not yet profitable.

Examples: -3 losing trades switch to SIM remainder of session -Take a random trade, switch to SIM remainder of session -Two max loss days back to back, SIM for remainder of week -No trading outside RTH

4. Risk Management

You don’t need to over complicate your risk management. Below is what I recommend to my students.

Example: -1% max per trade -3% max per day -5% max per week -15% max per month -Adjust trade size on Monday mornings

IMPORTANT! You should never trade real money until you have proven your ability to be profitable on a simulated account!

I promise, if you can’t make money on a simulated account, you won’t do it on a live account.

Don’t start trading a live account until you’ve proven you have acquired the necessary skills to make money on SIM.

5. Aftermarket Routine

All traders make mistakes. The question is whether or not you will analyze those mistakes to learn from them?

When the trade day ends, you still have work to do.

You should do some journaling and reflection on your execution for the day.

Keeping a  trade journal of all your trades as well as grading every trade is essential for growth. Make sure to take screenshots of your trades as well so you can go back and review them.

Here’s a few more examples: -Complete Scorecard for ever trade taken that day -Complete journal entry discussing market conditions for the day and reviewing your execution -Input trades into spreadsheet or whatever you’re using for analytics -Meditate -Workout

Trading can be emotionally challenging at times. There’s not many professions where you go to work and perform your best yet at the end of the day you leave with less money than you started.

Keeping mentally fit is imperative in this business. It’s important you incorporate some stress relieving activities, such as meditating or working out, into your aftermarket routine.

6. Weekend Routine

On Sunday evenings I have a routine to prepare myself for the upcoming week.

-Read trade journal entries from the past week -Review trades from the past week -Check sizing -Goals for upcoming week -Meet with Accountability Partner

7. Monthly Routine

On a monthly basis you should perform a thorough analysis on your trading business.

Examine your processes and trading analytics, looking where you can improve.

Examples: -Review trade analytics and make adjustments to strategies -Backup everything -Check risk management and sizing -Write main goals for upcoming month

8. Goals/Achievements

The markets are always changing and presenting new opportunities as well as challenges. Even after 20 years, I still find myself learning new things.

Reflecting on why you started trading in the first place is important. Don’t ever lose sight of your goals.

Keep track of your goals and achievements in your trade plan as you progress as a trader. You will find it encouraging as you start to see your progress.

Examples: -Zero random trades for a week -Average trade score of X for the month -First chop comma ($1,000 net day)

While I think all these categories should be included in your own plan, remember to get creative and include anything you feel could potentially improve your trading.

Maybe include some pictures to motivate you.

Free Trade Plan Template (Download)

I created a template in Google Sheets with the categories and examples covered in this post to get you started on your trade plan.

If you would like the template and some other cool trading tools,  become a JT Insider. It’s free.

I also recommend you check out this guide “How to Become A Day Trader – (Here’s how I did it…)”. I share with you how I overcame my trading failures by developing an Objective Edge.

Final Thoughts

Whenever a student comes to me struggling, I ask them for their trade plan. The struggles typically lead back to a rule or set of rules they have outlined in their Trade Plan that they’re consistently breaking.

It’s an essential tool when reviewing your trading with your accountability partner. Remember to select someone close to you must be completely transparent with them or you’re only cheating yourself.

Don’t make trading more difficult than it already is. Write a solid plan and work on having the discipline to follow it.

Anything not mentioned you like to include in your plan? Leave a comment below!

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by  Dale Brethauer

December 7, 2017

By, Dale Brethauer

This will be a three-part series on developing a trading business plan.  This is a principle that separates successful traders from the wanna-be overnight millionaires, that are really just gamblers at a casino, and the house always wins.  However,  with the right foundation and strategies in place you can become the house, I can show you how, lets get started.

Crucial Trading Principle The number one reason why small businesses fail is they don’t have a plan. They’ve got a good idea and they take it so far, but they don’t have a plan of where they’re going to go from that point on. You need to treat trading like a business and you need a business plan. You need to have rules. You need to follow the rules. That’s what we’re going to develop with your trading business plan. This is going to be an evergreen document.  As you become more successful you might want to modify a couple of things.

I first presented this topic at the Trader’s Expo in Las Vegas in November of 2009. This was greatly appreciated by a lot of the people. I’ve taught it to my mentees over many years, and I have recently modified it to bring everything up to date for you people that are now listening.

One of the first things we will do is study losing traders. This was a study that came out of a book by Dr. Van Tharp. I attended one of Dr. Van Tharp’s seminars. It was a weeklong seminar. He taught me a lot about the psychology, about how to handle my ego, about how to look at realistic goals. I give him a lot of credit. He is the author of ‘Trade Your Way to Financial Freedom’. If you don’t have that book, I highly suggest you get a copy of it. You can go onto Amazon. It’s relatively inexpensive. It’s a fun read, and it’s just jam-packed with good information.

Dr. Van Tharp is not a trader per se. He’s a psychologist who works with traders and investors and helps them to become the best they can be. If we take a look at the list of losing traders and what they do, I don’t think you’ll be surprised. Take note, with your trading, do you have all these items?

Why Traders Lose

The trader has not set goals.

I think this is very common with a lot of new people that get into investing. They pick up a Wall Street Journal. They look at a chart. Of course, we always trade on the right-hand side of the chart where we don’t know what’s going to be happening in the future. It’s very easy to look at a chart in the middle and say, “Oh, I would have sold there”, or “I would have bought there”, and they just start. They have no goal in mind. They just want to make a lot of money. Well, what is the goal? You need a goal.

Unrealistic Expectations

An excited prospective trader starts with a very small account and expects to quit their day job and become a millionaire trading the stock market...tomorrow. Very unrealistic expectations. You need to have realistic expectations. You need to be willing to put in the time and the effort in the beginning stages for it to become effortless later on. if this turns you off then your money is better used elsewhere.

There was a book written called ‘Outliers’ that talks about any professional needs to put in about 10,000 hours in their profession to become great. You wouldn’t expect to read a book on brain surgery over the weekend and perform your first surgery on Monday, but a lot of people go to the library or the bookstore or Amazon and pick up a book on stock market trading and read it over the weekend and say, “I got it. I’m going to trade for a living”.

You have to have realistic expectations. Unfortunately, a lot of people consider the stock market as a big casino. They have a need for action, and that kills them. You need to be patient. Don’t let the market trade you. You trade the market when you know you have an edge.

Poor Risk Management

The third reason for losing is exposure to too much risk. Too much money is allocated to any given trade. If it goes against them, they possibly jump out of the trade prematurely. If it goes with them, they’re too quick to take profits because they have so much invested. They’re exposing themselves to so much risk. There is so much anxiety. They jump and they’re quick to take profits and they let their losses run.

Lack of Confidence

The fourth reason is people have a lack of confidence and it stems from no plan, no system, no rules.  I’m a professional. I’ve been doing this for 35+ years and I have losing trades. I have a string of losing trades, and it does not shake my confidence at all.  I embrace them because that’s part of trading and those loses are already built into my models.  Conversely, when I have a 5, 10, 15, winners in a row I do not think I'm god to the markets either.

Records and Back Testing

The fifth reason traders fail is because there are no rules in place and no records. Why did that trade go bad? Write it down. If those rules are back-tested, are paper traded and then are traded with real money and they work, those are the rules that you have to follow.

Lack of Strategy & Systems

The sixth and final reason traders lost is that they start without a strategy.  No system in place that designates, prior to entering a trade, what the course of action is if its a loser, if its a winner, if its break even.  What defines a trader is our ability to grab value so how will you do that when your emotions kick in during these trades.  Emotionless,  Planned, trading is the path to success.

Jack Schwager Got is Right Jack Schwager says in his book, ‘The Market Wizards’ - which is an exceptional book that you ought to pick up too - he interviews a lot of very successful traders, he says the number one reason that people lose is they don’t have a trading plan. Well, the next three webinars, that’s what I’m going to teach you. This is just a framework for you to go by. You can expand yours as much as possible. Now, in Schwager’s book, he says, “Trying to win in the markets without a trading plan is like trying to build a house without blueprints. Costly mistakes are inevitable. If you do have a plan, those mistakes are avoidable”. He goes on to say a trading plan simply requires combining a personal trading strategy with specific money management and trade entry and exit rules . Those are three very, very important elements.

Your Trading Business Plan | Overview

I’m going to go a little bit further with my trading plan. I’m going to look into all the reasons why traders lose and try to develop a strategy to get around the losing mentality. My trading plan, the elements are, you need to have goals. That knocks the first one reason for losing. Those goals need to be affirmations. You need to tell yourself. You need to write down what your goals are and how you’re going to obtain them. Reinforce that daily by saying them aloud. Make your grey matter believe what you’re doing.

Next you need to have realistic expectations. How much money do you really need from the market? What is your objective in being in the market? What are your realistic expectations? We don’t want to go to the casino. Casinos are all over nowadays. Just walk into a casino, put it on red and black and get your need for action out of the way.

The stock market is not a gambling house. Those who gamble lose. You don’t want to expose yourself to too much risk. Therefore, I’ve developed a number of rules to determine, for your given portfolio, what should be your maximum trade size to trade like a professional?

When you start doing these things and you start seeing your equity curve going up, your confidence is going to grow.

Next, you need rules. You need trading rules. They can be simple rules, but you need to have rules. A lot of these that I’m going to show you, it’s things that I have developed. Some of them I’ve changed the numbers and so forth, but I want to give you an example of how you might put this together.

You need to go on your own path and make sure that the trading business plan fits your trading needs. You need a strategy. What are you going to do? Are you going to buy when the stock is oversold? What does that mean? Are you going to sell when it’s overbought? What does that mean? When are you going to get out? You need trading strategies.

Then I’m going to show you how I structure my portfolio. My portfolio is mostly in stock and trading the S&P 500 ETF and also the RUT and some of the big indices. Then finally, we’re going to talk about the learning curve.

Start out with paper trading. When you’re making money paper trading, you’re ready to invest your hard-earned money.

Successful Trading Tactics | Overview

You can see that the trading business plan elements that I’ve defined here are aimed at attacking all the problems that losing traders have.

Part one:  Goals and Affirmations, Most Losing Traders skip this step..

Goals and affirmations. I believe this is the beginning phase of what you need to further develop your strategies and how you’re going to tackle this. You need to know why you’re in the market, you need to have affirmations and you need to convince your grey matter that those affirmations will come to fruition.

Part two: Trading Strategies

Trading strategies, the trading rules and trade size to manage your money.

Part three:  Portfolio Structure & System Deployment  

Demonstrate how you should structure your portfolio as you grow and the very important learning curve.

Part 1:  Goals & Affirmations

Let’s go ahead and talk about the goals and affirmations. For your goal, I want you to determine a specific monetary amount that you desire on a yearly basis. Think about your financial situation. Think about what would make a big change in your lifestyle for the better. Not “I want to hit the lottery” and who knows what you’re going to do with the winnings. I want you to think about the stock market as a vehicle to fulfill your goal, to benefit you financially.

I want you to be realistic. Here I’m just giving an example of saying, “Well, $5,000 a month would pay for my monthly expenses”. If that’s the case, that is a fantastic goal. That is something that is obtainable if you put the time and the effort into it.

Let’s say your goal is “I want to make $5,000 per month or $60,000 per year in the stock market”. Realizing that it’s not going to be a straight line up, you’re not going to be able to say “At the end of this month I made $5,000 I’ll put it in the bank. Then the next month I’m making…” No. You’re going to have an equity curve that is going to go up and down.  Sometimes you’ll make more than your goal, sometimes you’ll bank less than that.

You want an equity curve that goes up nice and smooth so that on average you can pull out some money to help you in your financial situation. Make this a realistic goal. Take time. Think about it. Talk to your significant other. What makes sense? What would really help you? Be in this together. Set down a specific monetary goal.

For the time being, don’t worry about how much you have and how you’re going to do that. What I want you to do is determine the ultimate goal that will make you financially free. Once you have that goal in mind, I want you to write it down on paper. Then I want you to write a focused affirmation based on where you’re at today.

Now, let’s say you’ve only got a $30,000 portfolio or any amount that you have. Remember, we want to make $60,000 a year. Well, how are you going to do that on just a $30,000 portfolio? You’re not going to double your money year after year after year. That’s unrealistic. This is not going to happen. Let’s get realistic.

Your affirmation might be, “I will be a consistently successful trader”. Well, that’s all well and good, but how? How are you going to do that? Better to say “I’m going to have a goal of $1,500 per month. Now, I’m going to use that to build up my portfolio to the point where I can consistently make $5,000”.

You’ll be able to put a curve together and that’s going to be about 10 years. At that time it’s going to require this amount of money for my portfolio. Now you have a long-term goal. It’s a realistic goal. It’s not going to happen overnight. I’m going to learn as I’m going through here. I’m going to give myself time to reach my ultimate goal. How am I going to do that? I’m going to trade the SPX indices and I’m going to do directional credit spreads. Okay.

Now let’s look at this affirmation. This affirmation says that you’re going to be consistently successful. This is your immediate goal, realizing you’re not going to make that every month. You’re going to slowly build your account, and you’re in no hurry because you’re learning, you’re building and ultimately this is where you want to go. You’ve got time to do that. These are the two vehicles you’re going to use to get there.

Now, you have an affirmation that is tied to your goal that you can now tell yourself. I want you to write this down. I’ve been doing this for many years, and I change on a regular basis. I started many years ago, and I’ve got so many iterations of my goal because my goal has changed over the years. You want it to be evergreen.

There are other things that I’ve completely missed on my affirmation. But, in retrospect it’s better that I had them because they absolutely had an adjacent impact on my success.

Think of your affirmations as an evergreen document. Make sure it’s realistic. Write it down. Say it to yourself. Make your grey matter remember it, and you’ll be well on your way to being a success in the stock market. Those are the first two elements of your trading business plan. What is your goal? What are your affirmations?

That’s part one of my trading business plan webinar. I look forward to continuing this in part two. Part two, we’re going to be talking about trading strategies and the rules around those trading strategies. That’s a very important portion. It’s a continuation of this base that we’re developing here on part one.

If you have any questions please go to the website, click on contact in the upper right hand corner, and send us a message.

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What Is a Stock Option?

• How It Works

Trading Stock Options

Employee stock options.

• Calculate the Value
• Exercise Stock Options

Stock Options and Taxes

Types of stock option plans, the bottom line.

• Options and Derivatives
• Strategy & Education

What Are Stock Options? Parameters and Trading, With Examples

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Nez Riaz / Investopedia

A stock option (also known as an equity option), gives an investor the right—but not the obligation—to buy or sell a stock at an agreed-upon price and date. There are two types of options: puts , which is a bet that a stock will fall, or calls , which is a bet that a stock will rise.

Because it has shares of stock (or a stock index) as its underlying asset, stock options are a form of equity derivative and may be called equity options.

Employee stock options (ESOs) are a type of equity compensation given by companies to some employees or executives that effectively amount to call options. These differ from listed equity options on stocks that trade in the market, as they are restricted to a particular corporation issuing them to their own employees.

Key Takeaways

• Stock options give a trader the right, but not the obligation, to buy or sell shares of a certain stock at an agreed-upon price and date.
• Stock options are a common form of equity derivative.
• One equity options contract generally represents 100 shares of the underlying stock.
• There are two primary types of options contracts: calls and puts.
• Employee stock options (ESOs) are when a company effectively grants call options to certain employees as compensation.

Understanding Stock Options

Options are a type of financial instrument known as a derivative . This means their worth is based on, or derived from, the value of an underlying security or asset. In the case of stock options, that asset is shares of a company’s stock. Not every stock will have a connected option chain.

The option is a contract that creates an agreement between two parties to have the option to sell or buy the stock at some point in the future at a specified price. The price is known as the strike price or exercise price.

Stock options come in two basic forms:

• Call options  afford the holder the right, but not the obligation, to buy the asset at a stated price within a specific time frame.
• Put options  afford the holder the right, but not the obligation, to sell the asset at a stated price within a specific time frame.

Therefore, if XYZ stock is trading at $100, a $120-strike call would become worthwhile to exercise (i.e., convert into shares at the strike price) only if the market price rises above $120. Or, an $80-strike put would be worthwhile if the shares drop below $80. At that point, both options would be said to be in the money (ITM) , meaning that they have some intrinsic value (namely, the difference between the strike price and the market price). Otherwise, the options are out of the money (OTM) , and consist of extrinsic value (also known as time value). OTM options still have value since the underlying asset has some probability of moving into the money on or before the option expires. This probability is reflected in the option’s price.

Equity options are derived from equity securities, like stocks and exchange-traded funds (ETFs). Investors and traders can use equity options to take a long or short position in a stock without actually buying or shorting the stock. This is advantageous because taking a position with options allows the investor/trader more leverage in that the amount of capital needed is much less than a similar outright long or short position on margin. Investors and traders can, therefore, profit more from a price movement in the underlying stock.

Exercising an option means using the option holder’s right to convert the contract into shares at the strike price.

Stock Option Parameters

American vs. european styles.

There are two different styles of options: American and European . American options can be exercised anytime between the purchase and expiration date. European options, which are less common, can only be exercised on the expiration date.

Expiration Date

Options contracts exist for only a certain period of time. This is known as the expiration date . Options listed with longer expiration dates will have more time value since there is a greater chance of an option becoming in the money the longer there is for the underlying stock to move around. Option expiration dates are set according to a fixed schedule (known as an options cycle ) and typically range from daily or weekly expirations to monthly and up to one year or more.

Strike Price

The strike price determines whether an option should be exercised. It is the price that a trader expects the stock to be above or below by the expiration date.

As an example, if a trader is betting that International Business Machines Corp. ( IBM ) will rise in the future, they might buy a call for a specific month and a particular strike price. For example, a trader is betting that IBM’s stock will rise above $150 by the middle of January. They may then buy a January $150 call.

Contract Size

Contracts represent a specific number of underlying shares that a trader may be looking to buy. One contract is equal to 100 shares of the underlying stock.

Using the previous example, a trader decides to buy five call contracts. Now the trader would own five January $150 calls. If the stock rises above $150 by the expiration date, the trader would have the option to exercise or buy 500 shares of IBM’s stock at $150, regardless of the current stock price. If the stock is worth less than $150, the options will expire worthless , and the trader will lose the entire amount spent to buy the options, also known as the premium.

The premium is the price paid for an option, It is determined by taking the price of the call and multiplying it by the number of contracts bought, then multiplying it by 100.

In our example, if a trader buys five January IBM $150 calls for $1 per contract, the trader would spend $500. However, if a trader wanted to bet the stock would fall, they would buy the puts.

The volatility of the underlying security is a key concept in options pricing theory. In general, the greater the volatility, the higher the premium required for all options listed on that security.

Stock options are listed for trading on several exchanges, including the Chicago Board Options Exchange (CBOE) , the Philadelphia Stock Exchange (PHLX) , and the International Securities Exchange (ISE) , among several others.

Options can be bought or sold depending on the strategy a trader is using. Continuing with the example above, if a trader thinks IBM shares are poised to rise, they can buy the call, or they can also choose to sell or write the put. In this case, the seller of the put would not pay a premium but would receive the premium. A seller of five IBM January $150 puts would receive $500.

Should the stock trade above $150, the option would expire worthless, allowing the seller of the put to keep all of the premium. However, should the stock close below the strike price, the seller would have to buy the underlying stock at the strike price of $150. If that happens, it would create a loss of the premium and additional capital, since the trader now owns the stock at $150 per share, despite it trading at lower levels.

Another popular equity options technique is trading  option spreads . Traders take combinations of long and short option positions, with different strike prices and expiration dates, for the purpose of extracting profit from the option premiums with minimal risk.

Example of Stock Options

In the example below, a trader believes NVIDIA Corp. ( NVDA ) stock is going to rise in the future to over $170. They decide to buy 10 January $170 calls, which trade at a price of $16.10 per contract. It would result in the trader spending $16,100 to purchase the calls. However, for the trader to earn a profit, the stock would need to rise above the strike price and the cost of the calls, or $186.10. Should the stock not rise above $170, the options would expire worthless, and the trader would lose the entire premium.

Additionally, if the trader wants to bet that NVIDIA will fall in the future, they could buy 10 January $120 puts for $11.70 per contract. It would cost the trader a total of $11,700. For the trader to earn a profit, the stock would need to fall below $108.30. Should the stock close above $120, the options would expire worthless, resulting in loss of the premium.

Companies sometimes grant call options to certain employees as a form of equity compensation, to incentivize good performance or reward seniority. Employee stock options (ESOs) effectively give an employee the right to buy the company’s stock at a specified price for a finite period of time. ESOs often have vesting schedules that limit the ability to exercise. If the stock’s market price has risen once the vesting periods end, the employee can benefit greatly by exercising those options.

For example, if you begin to work at a startup, you might be given stock options for 12,000 shares of the startup’s stock as part of your compensation. These options aren’t given to you immediately; they vest over a designated period of time. Vesting means it becomes available to use. So after one year, you might be able to exercise 3,000 shares, then another 3,000 each year after that. By the end of four years, all 12,000 shares will be vested.

Employee stock options usually come with a “ cliff ” as well. This is the amount of time you must work with the company to receive your shares.

Options often come with an expiration date, which is the last point at which you can exercise your option. This could be a set number of years after the option is granted or a set number of days after you leave the company. The details of the expiration date should be in your contract.

Employee stock options are not publicly traded; they are granted exclusively by corporations to their employees. Upon ESO exercise, the company must grant new shares to that employee, which has a dilutive effect, as it increases the overall number of shares. Investors should pay attention to the number of employee options that have been granted to understand their fully dilutive potential.

How to Calculate the Value of Your Stock Options

If the company you hold options for is publicly traded, the value of your stock options depends on the current value of the stock. Calculate how much it would be worth if you were buying or selling the number of shares that you have an option for at the public price. Then, calculate how much it would be worth to buy or sell the same number of shares at the price of your option. The difference between them is the value of your stock option.

If the company isn’t publicly traded, it becomes a little trickier. If the business has received a valuation that determines how much each share in it is worth, then that can give you a starting point to value your options. But that’s still a speculative number.

The number of shares (or options) out there also affects the value of yours. The more shares there are (for example, if most employees have been given stock options they can exercise), then the lower the value of each individual share in the business.

The value of your options also depends on the value of the stock itself. If you have an employee stock option to buy 20,000 shares at $2 a share, but the stock is currently trading at $1 a share, then your option currently has no value. If the price of the share rises to $3, however, then your stock options have a value of $20,000.

How to Exercise Your Stock Options

When you exercise your stock options, that is when you actually buy or sell them. An employee with stock options, for example, can only exercise those options after they have vested.

If you are buying stock from an option, you buy it at the option price, regardless of what the current price of the stock is. So if you are an employee with an option to buy 12,000 shares of stock at $1 a share, you will need to pay $12,000. At that point, you would own the shares outright. You would be able to sell them (if you think the price is going to go down) or keep them (if you think the price is going to go up).

If you don’t have the cash available, there are a few ways you can still exercise your stock options:

• Exercise-and-sell : Purchase your options through a brokerage and immediately sell them. The brokerage handling the sale will effectively let you use the money from the sale to cover the cost of buying the shares.
• Exercise-and-sell-to-cover : Purchase your shares through your brokerage, then sell just enough to cover the cost of the transaction. You keep the rest of the shares.

If you exercise your stock options, you will need to pay taxes on any profit that you make. How your taxes are calculated depends on the type of option you have and how long you wait between exercising your option and selling your shares.

Taxes for Statutory Stock Options

Statutory stock options are granted through an employee stock purchase plan or an incentive stock option (ISO). For this type of option, you aren’t taxed when you are granted the option. In most cases, you will be taxed when you exercise the option. If that happens, your employer will report the income on your annual W-2 form.

If you are taxed after you exercise your option, it will be on the bargain element, which is the difference between the market value and the price you paid. For example, if the public price was $2 per share, and you exercised an option to buy 10,000 shares at $1 a share, you would pay taxes on the $10,000 difference between the two prices.

You would also have to pay capital gains tax whenever you sell your shares. If you hold the shares for less than a year after you sell them, they count as a short-term capital gain (or loss) and are taxed at your ordinary income rate. If you hold them for more than a year, they are taxed at the long-term capital gains rate (0%, 15%, or 20%, depending on your income and filing status).

Taxes for Nonstatutory Stock Options

Nonstatutory stock options aren’t granted through either an employee stock purchase plan or an ISO plan. In this case, you may have taxable income when you receive the option itself. For nonstatutory stock options, the taxable income you are considered to have depends on how readily determined the fair market value of the option can be.

If the stock is publicly traded, the fair market value can be readily determined. In that case, the option is treated as taxable income at the time it is granted to you. The tax rate for that income will depend on your total income and tax bracket. When you later exercise the option, you do not have to pay tax on any amount of income from the option.

Most nonstatutory stock options, though, don’t have a fair market value that can be readily determined. In that case, it is not treated as income until you exercise or transfer the option. Once you do that, you report the fair market value of the stock you receive (minus the amount you paid) as taxable income. This is usually taxed as a capital gain or loss.

There are different ways of structuring a stock option plan. These provide different levels of risk and incentive to both employers and employees.

Why Would You Buy an Option?

Essentially, a stock option allows an investor to bet on the rise or fall of a given stock by a specific date in the future. Often, large corporations will purchase stock options to hedge risk exposure to a given security. On the other hand, options also allow investors to speculate on the price of a stock, typically elevating their risk.

What Are the 2 Main Types of Stock Options?

When investors trade stock options, they can choose between a call option and a put option. In a call option, the investor speculates that the underlying stock’s price will rise. A put option takes a bearish position, where the investor bets that the underlying stock’s price will decline. Options are purchased as contracts, which are equal to 100 shares of the underlying stock.

How Do Stock Options Work?

Consider an investor who speculates that the price of stock A will rise in three months. Currently, stock A is valued at $10. The investor then buys a call option with a $50 strike price, which is the price that the stock must exceed for the investor to make a profit. Fast-forward to the expiration date, where now, stock A has risen to $70. This call option would be worth $20, as stock A’s price is $20 higher than the strike price of $50. By contrast, an investor would profit from a put option if the underlying stock were to fall below his strike price by the expiration date.

What Is Exercising a Stock Option?

To exercise a stock option involves buying (in the case of a call) or selling (in the case of a put) the underlying stock at its strike price. This is most often done before expiration when an option is deeply in the money with a delta close to 100, or at expiration if it is in the money at any amount. When exercised, the option disappears and the underlying asset is delivered (long or short, respectively) at the strike price. The trader can then choose to close out the position in the underlying at prevailing market prices, at a profit.

Options contracts are derivatives that give the holder the right to buy (in the case of a call) or sell (in the case of a put) a quantity of the underlying security at a specified price (the strike price) before the contract expires. Options on stocks come in standard units of 100 shares per contract, and many are listed on exchanges where investors and traders can buy and sell them with relative ease. Options pricing is an important financial achievement, where volatility has been identified as a key component of options theory,

ESOs are a form of equity compensation granted by companies to their employees and executives. Like a regular call option, an ESO gives the holder the right to purchase the underlying asset—the company’s stock—at a specified price for a finite period of time. ESOs are not the only form of equity compensation, but they are among the most common.

U.S. Securities and Exchange Commission. “ Investor Bulletin: An Introduction to Options .”

Financial Industry Regulatory Authority. “ Options: Types .”

U.S. Securities and Exchange Commission. “ Employee Stock Options Plans .”

Internal Revenue Service. “ Publication 525: Taxable and Nontaxable Income ,” Pages 13–14.

Internal Revenue Service. “ Publication 525: Taxable and Nontaxable Income ,” Pages 12–13.

Internal Revenue Service. “ Topic No. 409, Capital Gains and Losses .”

Internal Revenue Service. “ Publication 525: Taxable and Nontaxable Income ,” Pages 11–12.

Internal Revenue Service. “ Topic No. 427, Stock Options .”

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Trading Business Plan

Starting a trading business can be challenging because you have to build contacts, negotiate, and whatnot. But amidst worrying about all these things, planning is the last thing you want to worry about.

While anyone can start a new business, you need a detailed business plan when it comes to raising funding, applying for loans, and scaling it like a pro!

Need help writing a business plan for your trading business? You’re at the right place. Our trading business plan template will help you get started.

Free Business Plan Template

Download our free business plan template now and pave the way to success. Let’s turn your vision into an actionable strategy!

• Fill in the blanks – Outline
• Financial Tables

How to Write A Trading Business Plan?

Writing a trading business plan is a crucial step toward the success of your business. Here are the key steps to consider when writing a business plan:

1. Executive Summary

An executive summary is the first section planned to offer an overview of the entire business plan. However, it is written after the entire business plan is ready and summarizes each section of your plan.

Here are a few key components to include in your executive summary:

Introduce your Business:

Start your executive summary by briefly introducing your business to your readers.

Market Opportunity:

Mention your product range:.

Highlight the product range of your trading business you offer your clients. The USPs and differentiators you offer are always a plus.

Marketing & Sales Strategies:

Financial highlights:, call to action:.

Ensure your executive summary is clear, concise, easy to understand, and jargon-free.

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2. Business Overview

The business overview section of your business plan offers detailed information about your company. The details you add will depend on how important they are to your business. Yet, business name, location, business history, and future goals are some of the foundational elements you must consider adding to this section:

Business Description:

Describe your business in this section by providing all the basic information:

Describe what kind of trading company you run and the name of it. You may specialize in one of the following trading businesses:

• Retail trading
• Wholesale trading
• Export-import
• Dropshipping
• Describe the legal structure of your trading company, whether it is a sole proprietorship, LLC, partnership, or others.
• Explain where your business is located and why you selected the place.

Mission Statement:

Business history:.

If you’re an established trading business, briefly describe your business history, like—when it was founded, how it evolved over time, etc.

Future Goals

This section should provide a thorough understanding of your business, its history, and its future plans. Keep this section engaging, precise, and to the point.

3. Market Analysis

The market analysis section of your business plan should offer a thorough understanding of the industry with the target market, competitors, and growth opportunities. You should include the following components in this section.

Target market:

Start this section by describing your target market. Define your ideal customer and explain what types of services they prefer. Creating a buyer persona will help you easily define your target market to your readers.

Market size and growth potential:

Describe your market size and growth potential and whether you will target a niche or a much broader market.

Competitive Analysis:

Market trends:.

Analyze emerging trends in the industry, such as technology disruptions, changes in customer behavior or preferences, etc. Explain how your business will cope with all the trends.

Regulatory Environment:

Here are a few tips for writing the market analysis section of your trading business plan:

• Conduct market research, industry reports, and surveys to gather data.
• Provide specific and detailed information whenever possible.
• Illustrate your points with charts and graphs.
• Write your business plan keeping your target audience in mind.

4. Products And Services

The product and services section should describe the specific services and products that will be offered to customers. To write this section should include the following:

Describe your products:

Mention the trading products your business will offer. This may include product categories, product range, product features, product sourcing, etc.

Describe each service:

Mention the trading services your business will offer. This may include:

• Logistics & shipping
• Warehousing & storage
• Distribution & fulfillment

Additional Services

In short, this section of your trading plan must be informative, precise, and client-focused. By providing a clear and compelling description of your offerings, you can help potential investors and readers understand the value of your business.

5. Sales And Marketing Strategies

Writing the sales and marketing strategies section means a list of strategies you will use to attract and retain your clients. Here are some key elements to include in your sales & marketing plan:

Unique Selling Proposition (USP):

Define your business’s USPs depending on the market you serve, the equipment you use, and the unique services you provide. Identifying USPs will help you plan your marketing strategies.

Pricing Strategy:

Marketing strategies:, sales strategies:, customer retention:.

Overall, this section of your trading business plan should focus on customer acquisition and retention.

Have a specific, realistic, and data-driven approach while planning sales and marketing strategies for your trading business, and be prepared to adapt or make strategic changes in your strategies based on feedback and results.

6. Operations Plan

The operations plan section of your business plan should outline the processes and procedures involved in your business operations, such as staffing requirements and operational processes. Here are a few components to add to your operations plan:

Staffing & Training:

Operational process:, equipment & machinery:.

Include the list of equipment and machinery required for trading, such as office equipment, warehouse equipment, transportation vehicles, packaging & testing equipment, etc.

Adding these components to your operations plan will help you lay out your business operations, which will eventually help you manage your business effectively.

7. Management Team

The management team section provides an overview of your trading business’s management team. This section should provide a detailed description of each manager’s experience and qualifications, as well as their responsibilities and roles.

Founders/CEO:

Key managers:.

Introduce your management and key members of your team, and explain their roles and responsibilities.

Organizational structure:

Compensation plan:, advisors/consultants:.

Mentioning advisors or consultants in your business plans adds credibility to your business idea.

This section should describe the key personnel for your trading business, highlighting how you have the perfect team to succeed.

8. Financial Plan

Your financial plan section should provide a summary of your business’s financial projections for the first few years. Here are some key elements to include in your financial plan:

Profit & loss statement:

Cash flow statement:, balance sheet:, break-even point:.

Determine and mention your business’s break-even point—the point at which your business costs and revenue will be equal.

Financing Needs:

Be realistic with your financial projections, and make sure you offer relevant information and evidence to support your estimates.

9. Appendix

The appendix section of your plan should include any additional information supporting your business plan’s main content, such as market research, legal documentation, financial statements, and other relevant information.

• Add a table of contents for the appendix section to help readers easily find specific information or sections.
• In addition to your financial statements, provide additional financial documents like tax returns, a list of assets within the business, credit history, and more. These statements must be the latest and offer financial projections for at least the first three or five years of business operations.
• Provide data derived from market research, including stats about the industry, user demographics, and industry trends.
• Include any legal documents such as permits, licenses, and contracts.
• Include any additional documentation related to your business plan, such as product brochures, marketing materials, operational procedures, etc.

Use clear headings and labels for each section of the appendix so that readers can easily find the necessary information.

Remember, the appendix section of your trading business plan should only include relevant and important information supporting your plan’s main content.

The Quickest Way to turn a Business Idea into a Business Plan

Fill-in-the-blanks and automatic financials make it easy.

This sample trading business plan will provide an idea for writing a successful trading plan, including all the essential components of your business.

After this, if you still need clarification about writing an investment-ready business plan to impress your audience, download our trading business plan pdf .

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Frequently asked questions, why do you need a trading business plan.

A business plan is an essential tool for anyone looking to start or run a successful trading business. It helps to get clarity in your business, secures funding, and identifies potential challenges while starting and growing your business.

Overall, a well-written plan can help you make informed decisions, which can contribute to the long-term success of your trading company.

How to get funding for your trading business?

There are several ways to get funding for your trading business, but self-funding is one of the most efficient and speedy funding options. Other options for funding are:

• Bank loan – You may apply for a loan in government or private banks.
• Small Business Administration (SBA) loan – SBA loans and schemes are available at affordable interest rates, so check the eligibility criteria before applying for it.
• Crowdfunding – The process of supporting a project or business by getting a lot of people to invest in your business, usually online.
• Angel investors – Getting funds from angel investors is one of the most sought startup options.

Apart from all these options, there are small business grants available, check for the same in your location and you can apply for it.

Where to find business plan writers for your trading business?

There are many business plan writers available, but no one knows your business and ideas better than you, so we recommend you write your trading business plan and outline your vision as you have in your mind.

What is the easiest way to write your trading business plan?

A lot of research is necessary for writing a business plan, but you can write your plan most efficiently with the help of any trading business plan example and edit it as per your need. You can also quickly finish your plan in just a few hours or less with the help of our business plan software .

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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