Order Entry Checklist
Pre-trade verification: what to check before placing an order
Why a Pre-Trade Checklist Matters
Most trading errors happen when traders rush and skip steps. A simple but complete pre-trade checklist can prevent costly mistakes. A common error is buying the wrong option (a call instead of a put, the wrong expiration, the wrong strike). Another is forgetting to set a stop loss or profit target. Another is failing to check the position size against the risk your account can carry. Another is not considering the tax implications of your trades. A checklist ensures you have gone through every critical step before hitting send. Even professional traders use checklists — in fact, especially them. Investing 30 seconds in a checklist can save you thousands of dollars in avoidable losses. Creating your own is one of the best practices you can implement today.
Essential Checklist Components
The checklist should include verifications about the specific contract. Is it a call or a put? Is the expiration date correct? Is the strike the one you intended? Is the position long (buying) or short (selling)? You should verify the position size. Is the number of contracts what you intended? Is the dollar risk acceptable? Is it less than 2-5% of your total account capital? You should verify the prices. Is the bid-ask reasonable? Is the spread much wider than average? Is there sufficient open interest and volume? You should verify your strategy. Am I going long because I expect a rise, or short because I expect a fall? Do I have a predetermined profit target? Do I have a predetermined stop loss? Have I considered how I would roll the position if needed? Am I following my trading plan or breaking my own rules?
Critical Risk Checks
The most important aspect of order entry is risk management. First, calculate the maximum risk of this trade. For long options, it is what you spent. For short options, it is the theoretical maximum loss if price moves drastically against you. Second, verify that this risk is 2-5% of your account capital. If it is higher, cut the position size. Third, make sure you set a stop that reflects that maximum acceptable risk. Fourth, set a profit target: at what price will I close this winning trade? Fifth, ask yourself: "what is the worst that can happen, and am I prepared for it?" If the answer is no, do not enter the trade. Most beginners break this risk rule constantly, and it is the main reason they lose money. Professionals NEVER break these rules.
Liquidity and Execution Checks
Before entering, verify the option is liquid enough for your trade. Look at open interest; is there at least 50-100 contracts open? Look at recent volume; is there at least 10-20 contracts a day? Look at the bid-ask spread; is it under $0.05-0.10? If the option has very wide spreads, be prepared for worse execution or widen the range on your limit order. For orders in extremely illiquid options, consider using limits rather than market orders. Check you are using the right order type: if you need immediate execution, a market order; if you can wait, a limit order. Consider using staggered limit orders if you are entering a large position. Verify your trading platform is working correctly and that the quote is current. Data delays can lead to badly informed orders.
When to Abort an Entry
After checking everything, there may still be reasons to abort. If, on checking the position size, the risk is too high, abort. If the option is less liquid than you thought and the spread has widened, consider aborting. If too much time has passed and the trade no longer looks good, abort; there will be other opportunities. If the option is showing abnormally high volume or volatility — a sign something is happening — investigate before entering. If price has moved significantly since you started analysing the trade and no longer fits your thesis, abort. If it simply "does not feel right" despite everything checking out, trust your instinct and abort. Professional traders cancel orders constantly when they do not feel the odds are in their favour. That is not losing money; it is declining to make it, and it is often the right decision.