Trading levels or approval levels are essentially the tools that limit the level of risk that customers might be exposed to while trading their securities. They provide a form of protection to both the broker and the customer. Read on to know the purpose of levels in trading and the importance of pursuing the level 5 diploma in trading.
Levels in trading:
If the trading strategy doesn’t work in the most expected way, then the broker is held potentially liable.In order to evade that risk brokers assess their customers and assign them trading levels to carry out transactions that could commensurate with their experience and funding. By following trading levels both the customer and the broker are protected from excessive exposure to risk. Brokers assign trading levels from level 1 being the lowest and level 5 being the highest. With a low trading level you will be fairly limited to the strategies, while if you try with the highest trading levels, the scenario would be completely different.
- With trading level 1, a corresponding position in the underlying security will let you buy and write options. It would give you the right to sell your stock at an approved strike rate and the only additional risk would be the amount of money to use this options.
- Trading level 2 allows you to buy call and put option without having a corresponding position in the underlying security. There isn’t a huge amount of risk involved, if you have the funds to buy the options contract. The only drawback to this scenario is that the contracts expire worthless which means you lose your initial purchase. This trading level is usually the lowest one assigned to the beginners.
- Trading level 3 allows the writing of options for the purpose of creating an upfront cost or debit spreads. In this case the losses are usually limited to that upfront cost without corresponding position in the underlying security.
- Trading level 4 you receive an upfront credit. If the spread doesn’t perform as planned and you are exposed to future losses then this trading level offers you the option of upfront credit because potential losses are more difficult to calculate.
- Trading level 5 is the highest level of trading which gives you the freedom to trade asper your interest but you are required to have a significant amount of options margin in your account.
Importance of level 5 diploma in trading:
- Level 5 diploma in trading will equip you with the ability to manage the broader managerial aspects of International Trade.
- To make the right decisions when problems arise.
- Develop the skills that will allow you to instinctively identify the accounting information that can help in building a successful trading strategy.
- Will introduce you to the functionality of asset markets.
- You will gain all the relevant tools to confidently explore all the market opportunities.
So, if you are impressed by the aforementioned reasons to do a level 5 diploma in trading, then enrol yourself now.