Welcome to The Stock Market Millionaire, episode number 13, “How To Be Successful Paper Trading Options.”

I want you to think of any traditional business, any one. An attorney’s office, a doctor, a supermarket grocery store, a place that sells shoes. It doesn’t matter. You can’t go ahead and pretend to put paper money down on rent,= that you have a store, and then pretend inventory or paper inventory, or fake inventory, and bring in fake customers to fake buy your inventory, to see how your business is going to work out. It doesn’t work that way, but in the market, it absolutely does work that way.

So, we need to discuss what is paper trading options? What does paper trading options actually mean? Okay. So when you look at paper trading, it is a non-funded, and write that down. If you’re not familiar with that, if you’re using the word paper trade, I really want you to start, to shift paper trading to non-funded trading. Well, what does that mean, Rob? You’re still treating it as if it is a real trade, except you’re doing it with paper, money, or fake money. You can take advantage of actual market data that’s out there, and you can capitalize on the same trades. You’re just not putting any real money in them. Now that also means there’s no risk. And we’ll talk about risk in just a few minutes, but there’s no risk because it is paper. It is non-funded. You still need to treat this as if it is a real trade.

Okay, so here’s another question I get from students all the time, why you must practice trade options or practice options trading before ever putting real money into the trade. The very first thing I tell people, when we talk about why practice trade, whether it’s options, stock, it doesn’t matter, why practice trade first? You need to be able to do things according to your risk profile, which you will never know if you don’t pull the trigger first. You will never know how to hit the buttons on the keyboard properly. “Oh, but Rob, I watched some videos.” That’s awesome! You don’t know how to do the buttons properly. You don’t. How can you say that? Because you ain’t done it! I know it because I have been there. Been there, done that. Got the t-shirt guess what? They don’t teach you anywhere how to paper trade. They, the broker says, “Hey, here’s that platform go for it, baby!” You can go ahead and start putting in paper or practice trade. Same thing. Now, again, non-funded trades, right? You need to find your own personal risk profile, your risk tolerance. And you will do that when you treat this as a real trade, even though you don’t have any real money in the trade.

So if you’re the type of person that is very high risk, you have no problem with saying “I’m going to buy Amazon. I’m going to put a quarter million dollars into Amazon trade and I sleep like a baby tonight.” That’s awesome. There’s going to be some of you that go, “not so much. Sleep? Quarter million dollars? Uh, no.” Well, Amazon doesn’t fit your risk profile. $50 stock, $7 option, you’ve got to find your groove, right? You need to find your personal risk profile, your risk tolerance. You have to practice trade first. You must, must, must practice options trading before you ever do a funded options trade.

So where can you go to paper trade options? Great question. When you think about it right? Now, you’re going to use an options trading simulator like… Well, if you’re looking at your broker, they probably have one. If they’re an options broker, if they’re not then maybe not, and if they’re not certainly not a good one, if they do have it, and there are going to be some that are better than others, a lot of it comes down to creature comforts. “Ooh, I liked the colors of this. Ooh, I like the fancy graph. Oh, I like that. I can do this and that.” See, they’re more creature comforts, right? There are a few different ones that I use. The very first one is TradeStation. I’ve used TradeStation for over 20 years now. Absolutely love the platform. Are there some things I would change about it if it were my platform? Of course, if I owned it, absolutely. But guess what? I don’t. So, you know, I liked Sprint, I like AT&T or I like Verizon for my cell phone, but I wish they would do this. They won’t. So you can ask them, but they’re not changing because you go, “you should do this.” And they go, “oh my goodness. You’re right!” TradeStation is not going to change or any other broker. TOS, which is Thinkorswim, which is an Ameritrade product. What that means is, if you have an Ameritrade account, you already have access to TOS, Thinkorswim, you just need to download it, log into it with the same login as your Ameritrade account, and you have access to it.

If I were starting over today, I would probably start with TOS over a TradeStation. “But I thought you love TradeStation?!” I do, but that’s because I’m an old dog and I don’t want to learn new tricks. TOS is a great platform. It’s got some advanced, um, options, things inside of there that you can do – graphing and such risk profiles that you can’t do in TradeStaion, at least not to the same extent, but there are also some order types that you can do better, for me, better, in TradeStation that you can in TOS. So it really comes down to, again, what your personal preferences. There is no, right, there is no wrong, There just IS. What one fits your risk profile? What one do you like better? Practice them. Take it, take a spin in it.

How about some of the online brokers? Rob, if I go to a Schwab. Listen, if you’re comfortable with what they do, then I’m fine with it. Well, what about the Robinhoods of the world? You know, I don’t know enough on the order routing. There’s a lot of concern right now and I watched the SEC recently talk about the Robinhoods of the world. Although, they did not mention Robinhood by name, nor am I trying to single them out. What I’m getting at is this: these brokerages that are now charging no commission, they’re receiving what’s called “payment for order flow.” But guess what? Every broker gets payment for order flow. But the belief is, and the SEC said, they need to look into this – the new head of the SEC – they need to look into this because if they are taking payment, and that order flow payment, for order flow is because we’re sending to you, we’re paying you for that. And you’re not getting the best price, it’s called the best bid best, right, you must be given the best price. If you’re not, then they’re saying that they don’t know if they can regulate that per se to stop them. But, they’re going to require them to have to tell you and not just put it somewhere buried on page 318 of their documentation. It’s going to have to tell you may not be getting the best bid-ask price here, right?What that means is because they’re getting paid the company, paying them might be charging you what they’re paying out to that company.

But think of it. If the broker not charging the commission, how are they doing making money? Hmm. Have you thought of that yet? You need to. Commissions expensive for when I first started, my very first options trade was with the Merrill Lynch of the Lynch’s of the world. And I paid $200 for 10 contracts, and I made the trading decision. I didn’t call the broker and say, what do you think? And he said, “you should do this.” I called her up and said, “buy 10 contracts,” $200. And it took hours to find out if I was filled. Hours. Today, piece of cake. Hit enter, “order filled” right on TradeStation.

So as far as the broker, you use whatever one you want. But if you look at what makes a great options trading simulator, to me, it’s the features that are in there that you use. Excel as a spreadsheet has tons of features. Guess what? You won’t use most of them. If you use 20%, you’re better than most Excel users ever will be in Excel, right? It’s no different with the options trading simulator. What are you going to use in there? Right? Using the features that make it best for you. Can I get a complete option chain? Can I do married positions, meaning I want to do a vertical spread or a condo or a covered call. Right? Those types of positions, can I marry them together? Right? You take a TOS as an example; they allow you to have futures and forex. (I don’t know before I can, I may be wrong on that.) But futures, stock and options all on one account, right? Were other brokers like a TradeStation. You have to separate those into different accounts, which means you need more cash in order to do so.

Another broker, by the way, who is a good broker, they just don’t have, at least now a practice trading platform yet is Tasty, Tastyworks. Tom Sosnoff, the original creator of Investools, right? That original simulator that was built in that was all done with them. They built that out. They created all of that and they don’t have a simulator in their tasty works program at this point. Now with that being said, will they in the future? They say they will. Other than that, I like their platform. Some of their order entries could be better, but they’re really, they’re very brand new comparative to the TradeStations and the TOS-es of the world. Okay. So which specific broker to use really comes down to you.

As far as making it a great platform that comes down to you. You have to decide the features that you want. But no matter why paper trading options is a must before you ever put real money in a trade. All right, ladies and gentlemen, there, you have it. Have a wonderful rest of your day. And I will see all of you at our next update. See you soon. Thanks folks. Bye.