Currency Trading Information Channel |
|
|
|
Options Trading - Advantages and DisadvantagesWhat 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.
MORE RESOURCES updated Sat. April / 20 / 2024 How Inflation Impacts Currency Exchange Rates Forex Factory Prop Trading Firm True Forex Funds Introduces Match-Trader as Secondary Trading Platform Finance Magnates FX Trader Salaries: Insights and Trends for 2024 FinanceFeeds How to get started in trading forex CNN Underscored Understanding the Correlation of Oil and Currency Investopedia Stablecoins Could Help Ease T+1 FX Concerns Markets Media Stock market today: Asian benchmarks trade mixed amid expectations for US rates to stay high FOX 5 San Diego Zimbabwe's new gold-backed currency sliding on black market Voice of America - VOA News JP Morgan’s new way to trade FX overlays FX Markets Stock market today: Global benchmarks are mixed while US seems committed to current rates WKRG News 5 Currency Crash: How Millennium Management Made $40 Million Betting Against the Egyptian Pound Benzinga Best Forex Brokers In April 2024 Bankrate.com Stock market today: US stocks slip to deepen weekly losses following mixed earnings reports CW39 Houston Stock market today: Wall Street rises to recover some of last week's loss as oil prices ease ConchoValleyHomepage.com Illegal money changers adapt to Zimbabwe's ZiG currency rollout Business Insider Africa This Is How You Make Money Trading New York Magazine Best Brokers for Trading GBP to USD Economies.com South Korea hopes currency reforms will move chunk of NDF trading to spot deliverables - Reuters.com Japanese Yen Forecast: USD/JPY Rally Nears 155 – Is the BOJ “The Boy Who Cried Wolf?” - FOREX.com US Towards Increasing Complexity: The Evolution of the FX Market - Liberty Street Economics Liberty Street Economics - Forex Trading for Beginners NerdWallet 3 Best Forex Brokers for 2024 NerdWallet Why Is the Forex Market Open 24 Hours a Day? Investopedia Iran News: Iranian Central Bank Threatens Taxation on Currency Buyers Amid Soaring Dollar Prices - NCRI National Council of Resistance of Iran (NCRI) Foreign exchange contact group (FXCG) European Central Bank FOREX.com vs. Robinhood: Which Is Right for You? The Motley Fool How Often Do Exchange Rates Fluctuate? Investopedia China's New Currency Playbook Council on Foreign Relations Korean Won Overtakes US Dollar as Most Widely Used Currency for Trading Cryptocurrencies - ihodl.com AUD/USD Forecast Today - 19/04: Resistance (Video & Chart) DailyForex.com US Dollar Forecast: AUD/USD Takes Out February Low FOREX.com US Top Fiat Currencies Used to Trade Bitcoin Investopedia Trader's Case Tests DOJ's Policing of Global Currency Market The Wall Street Journal Dollar takes a breather as investors ponder US rates outlook The Economic Times EUR/USD Analysis Today 16/4: Nearest Buying Levels (Chart) DailyForex.com How to Trade Forex for Beginners | Learn Strategies and Tips Admiral Markets USD/JPY Analysis:Today 18/4: Watching Japan Cautiously DailyForex.com How can blockchain platforms make currency trading cheaper? Financial Times GBP/USD Analysis Today 16/4: Strong Selling Pressure (Chart) DailyForex.com
|