Chapter 04 · Section 4.1
Requirements for Trading Options
To understand the functioning of an options (and futures) exchange, you must understand two parts of the system:
- Order flow and matching of trades. (This is the same for all kinds of exchanges, including stock exchanges.)
- Clearing and Position keeping. This is a feature of exchanges on which instruments that cannot be owned or deposited are traded.
First of all, what do you need to trade options? Somebody who wants to buy or sell on an options exchange,
a) has to be a member of that exchange;
b) must either be a member or give the order to a member to act on his behalf;
c) can buy or sell by directly calling the exchange.
Could you imagine the exchange keeping huge files of addresses in order to keep track of retail customers?