Options Trading - Advantages and Disadvantages
What is Options Trading?
An option is simply granting someone the right to buy or sell something in the future. In the case of Dow index futures options, when someone buys a Dow call option they are buying the right to purchase that underlying Dow future at a specific price, known as the "strike price," at a future point in time, known as the "expiration date." When an investor buys a put, they are essentially selling the market; a call essentially buys the market. Likewise, selling a put essentially buys the market; selling a call essentially sells the market.
In order to receive the opportunity to buy an option on this future, investors pay a "premium." If the market does not reach the strike price of the option, then that option will expire worthless on the expiration date. If the market does reach the strike price of the option on the expiration date, then the investor will be assigned the underlying future at that strike price.
Advantages of Options Trading
Flexibility. Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply "the stock will go up" or "the stock will go down."
Leverage. An investor can gain leverage in a stock without committing to a trade.
Limited Risk. Risk is limited to the option premium (except when writing options for a security that is not already owned).
Hedging. Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying positon.
Disadvantages of Options Trading
Costs. The costs of trading options (including both commissions and the bid/ask spread) is significantly higher on a percentage basis than trading the underlying stock, and these costs can drastically eat into any profits.
Liquidity. With the vast array of different strike prices available, some will suffer from very low liquidity making trading difficult.
Complexity. Options are very complex and require a great deal of observation and maintenance.
Time decay. The time-sensitive nature of options leads to the result that most options expire worthless. This only applies to those traders that purchase options - those selling collect the premium but with:
Unlimited Risk. Some option positions, such as writing uncovered options, are accompanied by unlimited risk.
Overall Options present a good opportunity to formulate plans which can take advantage of volatility in underlying markets as well as price direction. However for most traders the disadvantages are significant and online futures trading is usually a better option.
Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.
A broker is any person or firm that charges a fee in exchange for executing trades for a trader. A Forex broker does not charge a commission for placing a buy or a sell order the way a real estate broker would charge a percentage fee of the total price of a sale. A Forex broker is paid according to the spread ? or the difference between the trader's bid for a currency, and the seller's asking price for that currency. Usually this spread is less than 0.1% or ten pips. (Pips are the smallest movement a currency can make on the Forex. Pips are commonly called referred to as points.) The lower the spread, the less a trader pays a Forex broker for a trade.
Forex Trading Online - 7 Reasons Why You Should!
Forex trading online is a fast way to use your investmentcapital to it's fullest. The Forex markets offer distinctadvantages to the small and large traders alike, makingForex currency trading in many ways preferable to othermarkets such as stocks, options or traditional futures. Hereare seven reasons why you'll want to look into Forex Tradingonline.
Two Timeless Rules in FOREX Investing
RULE #1) ~ Cut your losers; let your winners ride.
How To Handle A String Of Losses
Everybody hates to lose and unfortunately no one is blessed with the ability of foresight, therefore losses are an unavoidable part of trading. When we enter a trade we will either be right, or wrong, and even if we broke-even we'd still be classed as being wrong - as nobody enters into a trade just to break-even! When unsuccessful traders encounter a string of losses they begin to engage in self-destructive patterns that help them escape the pain they are experiencing.
Money Management, Part 1
There are some common mistakes I've seen traders make in the area of money management. First, let's understand what money management is all about.
What I Learnt Losing £60,000 My First Year as a Full-time Trader
During my first year as a local (independent trader) on the floor of LIFFE, I bought and sold 8804 FTSE futures contracts, about 40 contracts per day on average. The result was a loss of £61,620 or -£267 per trading day. I was profitable on 55% of days with an average gain of £1009, my average loosing day was -£1780. My biggest one day gain was £7730 and my biggest loss -£12,426.
Learn Forex Trading - a Guide for Beginners
One can learn forex trading as easily as one would like to learn other subjects or train in other professions. The criteria for learning forex trading is an analytical / logical bent of mind and some number crunching abilities. Reading specialized books on the subject matter, enrolling for college and other programs, which specifically teach one to do forex dealing, one can understand Forex trading. Still other ways are through the Internet and training under a forex dealer / professional. Essentially the forex market comprises of currencies, which are bought and sold according to certain parameters.
Advantages of Trading FOREX Over Stocks and Commodities
There are many advantages to Trading FOREX as your main income generator. Let's start by something that may be worrying you already.
Why Hedge Foreign Currency Risk?
International commerce has rapidly increased as the internet has provided a new and more transparent marketplace for individuals and entities alike to conduct international business and trading activities. Significant changes in the international economic and political landscape have led to uncertainty regarding the direction of foreign exchange rates. This uncertainty leads to volatility and the need for an effective vehicle to hedge foreign exchange rate risk and/or interest rate changes while, at the same time, effectively ensuring a future financial position.
Forex Broker Involvement Optional
To trade on the forex market, the largest financial market on the planet, one must use a forex broker. Not unlike a stock broker, a forex broker can also makes suggestions about which moves to make when exchanging foreign currency. Some forex brokers even supply technical analysis to some of their clients and offer tips on research to improve their success as forex traders.
A Short Introduction To FOREX
FOREX is the world's largest and most liquid trading market. Many consider FOREX as the best home business you can ever venture in. Even though regular people have had the opportunity to take part in trading foreign currencies for profit (in the same way banks and large corporations do) since 1998, it is just now becoming the cool, hip, new "thing" to talk about at parties, business events, and other social gatherings.
Forex Currency Trading
It is possible to buy and sell money from different countries on the foreign exchange market called Forex. Forex currency traders can profit by taking advantage of the dips and swells in the foreign currency market. Capturing these differentials is easier in Forex currency trading than in other trading because the Forex market is open twenty-four hours a day, except for weekends, and it is global, so there are always buyers and sellers available. The traders can be diverse. They can be traders looking for short-term gains, such as day traders or slightly longer investment periods, or they can be foreign investors who are looking to hedge their investments with long term Forex trades.
Options Trading - Advantages and Disadvantages
What is Options Trading?
Where to Get Forex Training
For those of you who are interested in forex trading, you may want to start off by getting some good forex training. Forex training is a necessity for anyone with this interest. This is because a lot of money is involved in forex trading. If you don't get some forex training, you are bound to lose a lot of money.
Psychology Of Trading
The psychological aspect of trading is usually underestimated by those new to trading. The psychological problem for most traders is the fear of losing - ironically it is this fear that causes most traders to lose money in the long run. The fear of losing can manifest itself in a number of ways:
Stocks Trading - Advantages and Disadvantages
What is Stocks Trading?
Day Trading - Moving Averages vs Support and Resistance
When day trading the SP and Nasdaq futures, do you rely on your moving averages more than your support & resistant areas?
FOREX - Where Fortunes Are Made Everyday
The Foreign Exchange Market ? better known as FOREX - is a world wide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day and American stock markets exchange about $100 billion a day.
Crisis of Confidence in the EU
The European Union (EU) constitution was dealt a double blow, first by a French "no" vote on 29-May and then by a follow on "no" from the Netherlands on 01-Jun. To add insult to injury, one low level Italian diplomat quickly called for a referendum in Italy to decide if a return to the lira was warranted. Additionally, Prime Minister Tony Blair, who took over leadership of the EU on 01-Jul, indefinitely postponed the British referendum on the EU constitution.
A Look at Online Forex Brokers
An online forex broker is a firm that facilitates retail trading using Internet technologies. Global Forex Trading (GFT), one of the popular online forex brokers. It provides retail traders with a free demo trading account, allows users to open a live account, gives live help, provides software called DealBook FX 2, and allows viewing of account documents. (DealBook FX 2 can be downloaded for the demo trading account).
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