As with any stock market transaction, trading futures and options involves some risk. Some investors allow online future trading firms to handle all transactions. Other investors choose to complete transactions on their own.

Regardless of the methods you use to invest your money in stock futures and options, knowing the basics is vital to making the best decisions about your money. Keep the following suggestions in mind when learning about the markets:

1. Find out the intricacies of the stock futures and options market.

2. Learn the terminology to make it easier to understand transactions and reports.

3. Keep abreast of all the news that affects the markets.

Action Steps
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Know the stock futures and options basics

Learning the stock futures and options basics is necessary prior to investing any money. Knowing things like a $1 change in a stock option is worth $1, but a $1 change in an S&P future is worth $250 can help you determine the best stock futures and options to invest in.

I recommend: You can find futures and options basics at Investopedia. This website offers charts and detailed information to make it easier for you to decipher futures and options trading information. The Options Industry Council has a full series on stock options, which includes basic information such as risks and benefits of options trading.

Familiarize yourself with stock futures and options terms

Many terms used in stock futures and option trading are complex and others are fairly simple. A limit, for example, is the most a future can advance or decline on any given day. A contingency order is an order an investor agrees to place only if you meet certain conditions. A clearinghouse is the market body that insures the financial integrity of each transaction. Knowing the terms used in trading enables you to make informed decisions.

I recommend: FuturesTraining.com offers a comprehensive glossary of stock futures terms. All definitions are in an easy to understand format geared toward new investors. You can find a list of the most common stock futures and options terms at Center for Futures Education. This list includes cross-references to similar terms.

Stay up to date on stock futures and options news

Finding out what is going on in the stock futures and options markets allows you to jump on good deals and wise investments at the most appropriate times. Stock tickers, futures lists and news articles are all ways to get this information.

I recommend: You can find the most up to date futures pricing at INO.com. This website offers stock futures investing information, including current and past quotes to make choosing futures as easy as possible. Stocks, Futures and Options Magazine offers a news section that keeps you abreast of things that affect the markets.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Consider taking a futures trading online course prior to investing any money in the market to ensure you fully understand all the intricacies of the market.

Futures trading and stock options trading offer a major advantage known as leverage. Say you have $5,000 dollars to invest. You could buy shares of a company, or you could buy stock options on that very same company. Each option gives you control of 100 shares. So with that $5,000, you can buy 10 options of a stock thats selling at $50, which amounts to 1,000 shares.

Stock futures contracts control the same amount of shares as options: 100 shares per single stock future. However, when trading futures, you usually only have to make a deposit of 20 percent. The deposit is to open the position and this is called initial margin. The power of leverage is how this is all possible. With a small amount of money, you can control a larger stake. This larger stake allows your potential profit to be much higher then if you only bought the stock outright.

In this guide to stock futures and options, you’ll learn:

1. Where to find educational tools to help you master futures trading and options trading.
2. Where to paper trade before you actually begin trading futures and options with real money.
3. Where to open an account to begin trading stock options and futures.

Action Steps
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Educate yourself about stock options trading and futures trading

For novice traders, it's a good idea to get a solid foundation in stock options trading and futures trading before putting your money on the line.

I recommend: The Options Industry Council (OIC) offers a variety of learning tools, including online classes, podcasts and live seminars to help beginners learn the basics of stock options trading. Investools also offers a host of courses and online tools on stocks and options trading.

Practice trading futures and options

Paper trading and practice accounts are a great way to get your feet wet in either the options or single stock futures market. Online futures sites even have practice trading accounts available to try before you place any real money on the line.

I recommend: First American Futures has a great 30-day online test trading account funded with $50,000 virtual dollars. At OptionsXpress and OptionsHouse, you can use virtual trading tools to practice trading futures and stock options.

Open a stock options trading account

Stock options trading is offered by most brokers. If you have a broker, you can usually upgrade your account by signing a few forms and placing your account on margin. If you prefer to find a new broker for trading stock options so you don't mix your current stock portfolio with your options portfolio, there are many online brokers to fit your needs.

I recommend: E*TRADE has low prices and an advanced options screening tool. TradeKing is another excellent options broker. Zecco Trading is known for their dedicated customer service. They also offer great prices for more complex trading strategies.

Open an online futures account

Many brokers offer single stock futures as well as stocks and other investment instruments.

I recommend: PFGBEST.com is an online futures broker that can trade single stock futures. Interactive Brokers can trade stock, options, bonds and futures all in one place. They are a little more expensive than some of the other futures brokers, but their trading platform is great, and with the ability to trade virtually all investment instruments, it makes them a one-stop shop. OptionsXpress will also allow you to trade futures, stocks, stock options and single stock futures.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  The biggest difference between stock options and single stock futures is that you have to trade single stock futures on margin.
• •  Always remember that stock options are a wasting asset. Options expire, and if the strike price is never reached, they can become worthless.
• •  With stock options trading, current stock price, strike price and expiration date are what you have to keep in mind.
• •  Single stock futures do not have a strike price. Stock futures are more straightforward and require only making a decision on the movement of a stock.

Whether you plan to work for yourself or for others, brushing up on your stock futures and options education and training will give you an edge over competitors. Many traders fail because they do not have a plan and don't evaluate risks. The world is ever-changing and so are market strategies.

Refreshing your knowledge of stock options and future trading is a great way to keep current in market trends and reduce risk in trading. There are many ways to keep current in the markets, but you might want to:

1. Obtain stock futures and options education and training through seminars and webinars.

2. Learn to use tools for trading futures and options.

3. Research futures and options trading online through a variety of resources.

Action Steps
The best contacts and resources to help you get it done

Get in-depth information on trading futures and options through seminars and interactive webinars

Attending a seminar is a great way to refresh your knowledge in future and options trading strategies. Learn about current market trends and let experts in the field answer y our questions.

I recommend: DTI Partners offers seminars around the United States throughout the year. Its seminars focus on the art and technique of trading in equities and in options and futures markets. Alaron Futures & Options offers free webinars for traders of futures and options. No telephone is necessary, since the company offers the conference via streaming audio.

Learn about tools for stock option and futures investing

Using tools designed for specific tasks in trading futures and stock options can save you time and money. The tools help in market comparisons and aid in market analysis so you get current, detailed information to base your purchases on.

I recommend: Day-Trading-Software.com offers a list of software providers that have programs for day trading. The various packages assist you in finding trades and managing accounts. The Clark Financial Group has a selection of web-based tools that evaluate, research and execute trades in futures and options.

Discover the hidden facets of options and futures trading online from Internet resources

Research the best way to tackle investing in futures and options by filtering through Internet resources that offer articles and interactive training. Create trading stratagems from your own home with the knowledge gleaned from online resources.

I recommend: Chicago Board Options Exchange offers interactive online training to enhance your options knowledge. It has tutorials, courses, seminars and webcasts for interested students. Soler Investments offers a wide variety of articles detailing strategies and advice and articles related to futures and options trading.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Consider contacting a stock futures and options consultant to learn the latest industry strategies. Most consultants will charge a fee, so make sure you know the cost before you agree to a meeting.

We all know that investing in stocks can be risky business. That’s what makes stock futures and options so important: they are both useful securities for managing the risk involved in trading stocks. If you have bought stocks, and are concerned about price decreases, you can use put options for protection. There are several important terms to be aware of when using futures and options, such as the mark-to-market method of accounting, the difference between call options and put options, the strike price, and the maturity of the contracts.

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Futures contract

A futures contract is an agreement between two parties to trade a certain good, named in the contract, at a certain point in the future. The price paid for the good is determined when the contract is written. This is the value of the futures: each party knows the price being charged for the good. So, for stocks, a futures contract allows the buyer to lock in a price weeks, even months, before actually buying the stock.

I recommend: A very good discussion of futures can be found at Riskglossary.com.

Mark-to-market

When you enter into a futures contract, your account with the broker will be updated daily to reflect the current value of the futures contract. Mark-to-market accounting has an effect on your account balance, which is the cash you deposited with the broker when entered into the contract. It is very important to know how mark-to-market works when dealing in futures.

I recommend: BusinessDictionary.com has a good, intuitive definition of mark-to-market accounting, and how it affects securities like futures.

Call option

A call option is the most common type of option. The owner of a call option has the right, but not the obligation, to buy the stock named in the option contract for a predetermined price. So, if the current market price of the stock is above the price listed in the option contract, the option has value. If the opposite is the case, then the option has no value.

I recommend: If you looking for a comprehensive definition of a call option, then look no further than the Investor Glossary.

Put option

A put option is the counterpart to a call option. It allows the owner to sell the stock named in the option contract for the price listed in the contract. Therefore, this option has value when the market price of the stock is below the price listed in the put option contract. It is very useful for short-term protection against sudden price drops on stock you already own.

I recommend: Check out Investopedia for a fine explanation of put options.

Strike price

Every option contract lists a strike price on the contract. The strike price is the price paid, for a call, or received, for a put, when the option is exercised. The strike price is very important because we compare the strike price to the current market price of the stock to determine when the option has value.

I recommend: InvestorWords.com has a good discussion of strike price.

Maturity

Remember that stock futures and options all expire, unlike the stock itself. In fact, stock futures and options tend to have very short maturity dates. The maturity of a futures or option contract is measured in months when the contract is initiated. The maturity is very important because it has a direct impact on the value of the contract. For example, options with longer maturity tend to have more value than options with short maturity.

I recommend: The CME Group website has a clear definition of maturity.