Hi all,
no offence to anybody, but there are several reasons why dissallowing options have been considered, including making the competitions more copetitive and therefore exciting in nature.
At the same time you have less experienced investors picking up bad habits. The way that they pick up bad habits is when they are making bad trades due to a poor strategy for whatever reason. The worst part is when that same trader thinks that she/he knows everything or is convinced that they are correct, which is what happens to create the bad habit in the first place.
Depending on how stubborn the investor is, the habit (good or bad) will be more difficult to get rid of for that trader in general. This can be a very good thing while at the same time a very tragic one. Say for instance that somebody attempts to trade options and fails considerably and loses the entire farm in the simulator. What you might end up doing is discouraging that person from ever investing in options in real life, when in fact they might have made a reasonable income over the course of their life by trading options. All they needed was a simply adjustment in their trading strategy. That same strategy can be found in trading stocks alone, such always using a written plan instead of a mental one, sticking to the plan, always having an entry and exit strategy for each trade, having a profit to loss risk ratio of at least 4:1 for every single trade, and learning how to allocate their funds whether it be diversification and/or dollar-cost-averaging. Only after understanding and implementing all of those strategies should any investor worry about increasing leverage. If you still MUST (note the stubbonrness of thinking that you are correct because OF COURSE you are
over-leverage yourself, then you are always free to open many other accounts or trade in other competitions on investopedia which you could dedicate for the sole purpose of trading options. See how you do in either account and compare. This might be a good idea regarding having two competitions; however, take these two examples into account (I feel that newer investors should choose the 2nd option
A= Bet all of your money with the highest leverage and lose it all in one day because you were "gambling" isntead of undertanding what you are doing.
Best-case scenario =not even the sky is the limit (double money in a day)
Worst-case scenario =Lose More than your initial investment (commodities) in a single day! After losing all of your money, you can no longer trade or invest. Making a 100% return on ZERO is till NOTHING! The object of the game is SURVIVAL not just growth. Can you afford to make mistakes and still have the ability to continue trading?
B=Bet all of your money with a lower leverage (stocks, margin accounts, short-selling) and make lower potential returns but at the same time lose no more than a certain amount of money.
Worst-case scenario =Lose only a few thousand dollars (perhaps 5% of your portfolio instead of 100% of it!)
Best-case scenario =Make only a few thousand dollars (perhaps 5% of your initial start-up capital instead of 100% returns)
If you really MUST do option A, then you should NOT be doing it for the very same reason. Especially if it's your first time, then I recommend that you first trade stocks, show that you have a sound trading plan and CAN STICK TO IT, and THEN go ahead and trade the profits you made from the stocks and go ahead and trade those profits in higher-leverage trades.
This way you allow yourself to be exposed to less risk because you can't keep trading if you lose your entire amount right away, but you can continue to try again and again if you survived a bad trade or two and still have capital to get back on your feet. That is why they don't allow to trade 100% diversification into a single option where you can lose more than you started with. For more experienced traders like myself it can be a pain when we aren't allowed to experience higher leverage, but at the same time, experienced investors understand that it's better to SURVIVE and receive lower returns than to seek out higher returns with the risk of DIEING and then you eliminate ANY chance of increasing your capital because you have none. There are always exceptions to everything; however, I've already rambled on a lot.
Note: short-selling is not riskier than trading options. Short-selling =investing in a company, but instead of predicting that it will make money, you are predicting that it will lose money. You get paid more for predicting correctly the direction that the stock will head. That does not mean more risk, because you are now simply given a tool to profit no matter what the market does.
It's when you are investing with higher leverage that you are exposing yourself to higher risk. You can invest in a stock and do short-selling with lower leverage for lower risk or you can invest in a stock and do short-selling with higher leverage for higher risk.
Discussing the use of options is the same as discussing how much leverage you will be entitled to use, therefore increasing your profit as well as LOSS potential.
I think the organizer can now better see why it's good to restrict the use of options: Some investors (especially newer ones) will tend to think that they have good strategies, whether or not they have a plan, and depending on how stubborn they are, they will get and keep the bad habit of investing their life's savings into a single trade possibly losing it all. At that point they may or may not have learned their lesson, but by then it's too late. If less experienced investors are needing to trade with higher leverage simply because of the excitement of being in a trade, then that alone shows that they should not be investing with fire (higher leverage.) Even if you are on the side-lines then that is considered a "position" as it's better to miss out on a good opportunity instead of experiencing one bad trade. Perhaps it is just wiser to tell the investors seeking higher leverage just to trade a regular stock account, and let them multiply the gains (or LOSSES) by 100 in their own head! Pretend that whatever happens in the account is multiplied with an effect 100 times higher than what you really made or lost. Keep a diary and track the performance, and at any-time if you wish to see how much you have made just multiply your gains by 100. Keep in mind; however, that if after multiplying by 100 you have LOST more than the initial $100,000 starting capital, then you would have to immediately stop investing. With the basic stock account, you can continue to trade because you have SURVIVED any losses. If your portfolio drops by 50% then it will then have to grow by 100% just to get back into the same starting point!
I know my posting is a little chaotic and hectic; however, I hope you'll forgive me and possibly thank me one day for preventing you from losing your entire portfolio. Of course we'll never be able to find out how much you didn't lose
Thank-you and take care. Remember: always do your own due dilligence and research!
Robert_Patyk@hotmail.com
BillionDollarBlueprint@hotmail.com
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