Trading Options – Why?

Options trading provide several benefits than any other investment vehicles, including the stock market or even the Forex. Let us look at some:

Leverage

Purchasing a call option gives the investor a good option position that’s similar to stock position. For example, if an investor would purchase 300 stocks selling at $50 per share, he would have to pay $15,000. But if he would choose to purchase three $20 calls (each contract representing 100 lots or shares), he will only have to pay $6,000 (3 contracts X 100 shares/contract X $20 market price). The investor would then have an extra $9,000 to spend or invest on his or her discretion. The process is obviously not as simple as that. The investor would have to know which call to purchase to have a good option position, similar to stock position. However, if you’re looking for a good investment without risking large sum of money at once, option trading is the better choice.

Limited Risk

Investment is said to be for the risk takers. This is good if your risk automatically yields to profit. But that’s not always the case. In options trading, however, you can have unlimited profit potential and at the same time have limited risk. This is because options trading only give you the right to purchase or sell underlying asset, and not the obligation. Meaning, if the price isn’t right at the end of the contract, you can just ignore and let the contract expire. If, however, you can profit for the change in shares prices, you can assert your right and pursue the contract.
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Futures Trading – Understanding It

from youtube

Futures trading is another investment option available for people who might wish to invest their money.

Future trading involves trading futures contracts. A future contract is an agreement between a producer and a purchaser on a future delivery of a certain amount of produce at a certain price. The futures contract evolved when farmers of grains began setting up agreements with interested purchasers for future harvests.

A farmer might offer in the market about 8000 bushels of wheat that can be delivered on a certain month of next year. There would be interested purchasers who might want to maintain their wheat supply for next year and would want to purchase such futures contracts to make sure. Upon an agreement on the price for the future produce, the farmer and the purchaser have gone into making a futures contract.

The futures contract that the two parties agreed to wouldn’t merely be stored in someplace safe. The contract might even change hands during the course of time before the actual date of delivery. Depending on the circumstances, farmers and purchasers may even trade these contracts to other interested parties. There are times that the purchaser of the futures contract might have a change of mind and wouldn’t want to take the future delivery of the produce. He would then find some other purchaser who’d be interested and offer the futures contract at a certain price. There are also times that the farmer would decide not to deliver on the said contract and would then pass on the obligation to deliver to another interested farmer. The transfer and trade of these contracts became known as futures trading.

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