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Trading Up -- the Virtual Way
TECHNOLOGY HAS CHANGED EVERYTHING ABOUT options trading, even the time-honored technique of "paper trading."
For generations, aspiring traders honed their skills by recording would-be buy and sell decisions with pen and paper, and then analyzing the results to uncover the strengths and weaknesses in their analysis.
Now, the Chicago Board Options Exchange, in conjunction with optionsXpress, has introduced a Website program that lets traders hone their trading skills with a "Virtual Trade Tool." The program enables traders of all experience levels to initiate virtual options trades in a simulated trading environment without risking any money.
To be sure, a variety of brokerage firms offer virtual trading programs to their clients, but anyone who registers on CBOE.com's "trading tools" section can use the service for free.
"Less than three months since launching the virtual trade tool, it's already the sixth most popular feature on CBOE.com as more than 50,000 visitors a month use the new tool," says Cynthia Elsener, CBOE's vice president in charge of Internet marketing.
Part of the trading program's attraction is that it was designed by optionsXpress to simulate the market's ups and downs. The program accomplishes this by using actual market data, including bids, asks and volatility levels. The trading tool is the same trading platform used by optionsXpress customers. The program was made "virtual" by disabling the computer coding that enables order executions.
"Most people learn options in seminars and classes, and here all you have to do is place a trade and the rest is real. We really think this is a training ground for options trading," says David Kalt, optionsXpress' chief executive officer.
At optionsXpress, the program has helped traders advance their understanding of options. Kalt says his firm's customers routinely use the program to master the mechanics of advanced options strategies like calendar spreads before risking real money.
Of course, nothing can replicate the reality of the market, but using real market data to power the virtual trading tool comes close. This is an important improvement over old-style "paper trading" that lacked any sense of immediacy because it relied on securities quotes printed in newspapers or on the Internet. The virtual trading tool lets users view and monitor orders and quotes just as if they were trading real positions.
While the trading tool has a feature that allows users to analyze their trading performance, there is one critical element to trading that it cannot replicate -- emotion.
And it is the emotion of investing real money, in real time, that most traders have trouble mastering. Real money tends to make people really emotional, and that is a key reason why there are more virtual millionaires than real ones.
(C) Barron's October 26 2006
TECHNOLOGY HAS CHANGED EVERYTHING ABOUT options trading, even the time-honored technique of "paper trading."
For generations, aspiring traders honed their skills by recording would-be buy and sell decisions with pen and paper, and then analyzing the results to uncover the strengths and weaknesses in their analysis.
Now, the Chicago Board Options Exchange, in conjunction with optionsXpress, has introduced a Website program that lets traders hone their trading skills with a "Virtual Trade Tool." The program enables traders of all experience levels to initiate virtual options trades in a simulated trading environment without risking any money.
To be sure, a variety of brokerage firms offer virtual trading programs to their clients, but anyone who registers on CBOE.com's "trading tools" section can use the service for free.
"Less than three months since launching the virtual trade tool, it's already the sixth most popular feature on CBOE.com as more than 50,000 visitors a month use the new tool," says Cynthia Elsener, CBOE's vice president in charge of Internet marketing.
Part of the trading program's attraction is that it was designed by optionsXpress to simulate the market's ups and downs. The program accomplishes this by using actual market data, including bids, asks and volatility levels. The trading tool is the same trading platform used by optionsXpress customers. The program was made "virtual" by disabling the computer coding that enables order executions.
"Most people learn options in seminars and classes, and here all you have to do is place a trade and the rest is real. We really think this is a training ground for options trading," says David Kalt, optionsXpress' chief executive officer.
At optionsXpress, the program has helped traders advance their understanding of options. Kalt says his firm's customers routinely use the program to master the mechanics of advanced options strategies like calendar spreads before risking real money.
Of course, nothing can replicate the reality of the market, but using real market data to power the virtual trading tool comes close. This is an important improvement over old-style "paper trading" that lacked any sense of immediacy because it relied on securities quotes printed in newspapers or on the Internet. The virtual trading tool lets users view and monitor orders and quotes just as if they were trading real positions.
While the trading tool has a feature that allows users to analyze their trading performance, there is one critical element to trading that it cannot replicate -- emotion.
And it is the emotion of investing real money, in real time, that most traders have trouble mastering. Real money tends to make people really emotional, and that is a key reason why there are more virtual millionaires than real ones.
(C) Barron's October 26 2006