Where An Option Trading Company Gets Money To Pay Your Profits?
One of the things that some traders wonder about is the source of profits given to traders who have speculated correctly. The truth is that the option trading companies usually need a big capital to start the business. They need a lot of money before they start inviting us to trade. They have to ensure that they will not default in paying us. Of course, there is always the possibility that option trading companies use the money lost by other traders to pay profits made by successful traders.
On the other hand, these option trading companies also need to set policies so we cannot leave them immediately after making profits through them. It is common for them to set a minimum number of contracts before a trader can request to cash out.
Would An Option Trading Company Hate A Trader Who Earns Thousands?
When we profit for choosing the right option, the trading companies definitely lose money. There are, and they are rare, traders who earn thousands of dollars just by option trading. Will the companies hate us if we win big all the time? No. There are some traders who lose money to them, too. In addition, most option trading companies believe that (and it is the truth) they still have the upper hand. However, there are some option trading companies who were reported to shut their business down because of lack of money to pay their traders so watch out. Choose your trading company very carefully.
Is It Legal For Option Trading Companies To Set A Maximum Number Of Contracts?
There is no law that covers this matter but most option trading companies would set a rule on the minimum number of contracts before pay out can be requested. There may or may not be a rule on how many contracts you can make in your lifetime. Nonetheless, most traders do not stick to a company and hardly reach a thousand contracts before they found a better choice.
What Does It Mean If The Company Is A Discount Broker?
Like me, you may also find some companies that operate as a full service broker while others are mere discount broker. The discount brokers focus on servicing dedicated traders by providing a list of assets and taking care of call or put options according to the customer’s preferences. On the other hand, the full service brokers provide other services such as advising. This may or may not have additional charges so I don’t use them.
The option trading companies invest lots of money to ensure that they can pay profiting traders. They will not suspend your account even if you are earning thousands every day. However, you should note that the companies differ on the minimum and maximum contracts they allow per trader. You may also choose to go to a discount or full service broker. Choosing an option trading company or broker depends on your preferences considering the information on their operations.