Here are some things to consider when trading:

1.    How many shares are traded daily?

Often times it is desirable for the volume to be greater than 1 million shares per day. The higher the better - this shows greater liquidity.

2.    How many options are traded daily?

If you are trading options, the option volume is also important. Also the higher the better. I am referring to the total volume across all strikes on any given day. A threshold you many want to use is volume greater than 1000 contracts. This will also depend on how many contracts you are personally trading.

Both #1 and #2 can be found on our volatility chart page for any underlying that we trade (bonds excluded).

3.    What is the Open Interest of the strike you want to trade?

Typically you do not want to trade more than 10% of current open interest. This can be found on our chains, along with Delta and I.V.

4.   How wide is the market in the underlying? How many shares are available at those prices?

Here we are talking about slippage and depth. The width of the quote, or the difference between the bid and the ask is referred to as the slippage. The tighter the better. With pennies today, the slippage here should be no more than 25 or 30 cents.

The depth of the market is related to how many shares are available at the current slippage amount. Can I trade 5000 shares at the price shown? Or only 100 shares? The difference is big. You want to trade the most liquid, the least slippage, the most depth you can find.

This can be seen when using our quote box or Quotes + Research.

5. What is the slippage and depth of the option market? Nowadays, you can typically trade a 10 lot (10 contracts) on any strike that is open for trading. However, that does not mean this is something you want to do. You want to be as anonymous as possible. You never want to find yourself in a "ROACH MOTEL" - you can check in, but you can't check out. The more obvious you are the worse for you. The bigger the market you trade, the more liquidity, depth, volume, in both the underlying and the option, it is better for you. The larger your size, the more important this becomes. Most issues should have option quotes tighter than 20 cents. This can also be seen using the quote box. Enter the option symbol here.

6. Is there something special I need to know about this product (symbol)?

a. Do you understand the risks associated with it?

b. When is the last trade processed? 4:00 or 4:15 ET?

c. When is the last day of trading for the front month (expiring cycle)? Thursday or Friday? Another day?

d. How does the trade settle? Cash or shares?

e. How is the settlement price calculated? When is it calculated? What is the settlement symbol?

f. How is automatic exercise calculated? In the money by 1 cent or 5 cents?

Please keep in mind these are only guidelines. There are exceptions and times to "bend" these items. The more you stray, the more risk you are willing to take. These guidelines will not guarantee success, but it will improve your chances. These are items that professionals will monitor in trading. It's only fair you should know about them too.

I would be happy to hear some other trade guidelines from our members.

--Nicole Wachs

TradeKing Staff