Options trading provides traders with good opportunities to earn money on exchanges. To receive income, it is necessary to study the fundamentals of the laws of the financial market and the rules of trading. Every newbie should know how to trade options, what factors and conditions must be taken into account, as well as how to analyze market movements.
Concept of option
An option is a contract under which a transaction is made with a selected trading asset with pre-agreed conditions and with a fixed and fixed expiration time. Before starting work, each trader analyzes the market movement in order to know which way to open a deal, and selects a suitable instrument for trading.
Options trading is a financial speculative operation performed by a trader with a specific trading asset. Depending on the specifics of the contract, the speculator can choose the most suitable trading conditions for the transaction and independently determine the duration of the option, that is, the period and date of expiration.
Since the tools for trading are different, and they all differ in their characteristics, a trader needs to know the features of the selected tool and how to trade options in certain market conditions. Only subject to the general laws of the financial market and trading rules, you can earn in this area.
Types of options and features
All options are divided into two types: for the purchase and sale of the underlying asset. Types of options:
The first option of trading instruments relates to purchases, that is, a trader has the opportunity to buy the underlying asset he needs for a certain fixed price. The second type involves the sale of an underlying asset. In addition, options are distinguished by several characteristics:
- Interest options (interest rate futures contracts or rates).
- Currency options (currency contracts or futures).
- Stock options (stocks, futures indices).
- Commodity options (physical commodities and commodity futures).
Additionally, options can be divided into:
And also all contracts are divided into option styles:
- American options.
- European options.
- Asian options.
All trading instruments have their own characteristics and characteristics. For example, American options can be closed any day at the request of its copyright holder until the contract expires. And the European version can be closed only on a strictly specified date, that is, at the end of the expiration time. Therefore, it is very important to know all the conditions of option contracts and the rules on when and how to trade options.
Benefits of Options Trading
Options as underlying assets are a very convenient tool for trading. The advantages or the main advantages of options trading include the following characteristics:
- They do not need to be physically bought, since all speculative operations occur on the trader’s trading account. When it comes to buying or selling an option, in fact, the speculator only predicts a change in market quotes, but does not physically buy anything. If his analytical data is correct, then he will earn a fixed amount. If the forecast is unfavorable, the trader will know the amount of loss in advance.
- Minimum financial risks. In option contracts, the amount of loss or profit is specified in advance. It is fixed and cannot be changed under any circumstances. And most importantly, the trader will know this amount before buying or selling an option.
- Wide trading opportunities. A large number of the most diverse strategies and tools for making money are available to traders. Many use the hedging method, automated programs, methods of copying transactions and other innovative solutions for trading.
- A wide range of trading assets - stocks, market indices, futures, metals, commodities, currencies.
Financial risk
It is important for every novice trader to remember that any transactions in financial markets are fraught with risks. Options are no exception. Therefore, it is important to be able to minimize risks in trading options.
There is a special section in trading - Money Management, which allows you to trade in a more secure mode. Proper management of capital or deposit funds helps traders minimize financial risks, and in some cases completely avoid them. Beginners should not only know how to trade options, but also how to avoid losses.
Most often, for these purposes, traders use the hedging method, which allows you to simultaneously open positions in different directions and thereby reduce losses, and under favorable circumstances, to bring transactions into profit.
For example, consider binary options. Suppose a trader, when buying an option, made a mistake in the calculations and after a while it becomes completely clear to him that the transaction will close at a loss. In this case, he can use the hedging method and open a position in the opposite direction with an increased bet volume. Such actions will help him block losses and make a profit.
The Basics of Options Trading for Beginner Traders
Options is a unique financial instrument with the help of which, if used correctly, you can make very good money in the market. These assets can minimize risks and use them both on the derivatives and stock markets.
The advantages of options trading include their main characteristics, namely the ability to trade in any direction of market movement. For traders and speculators, it does not matter which way the price moves. In addition, even if it had absolutely no changes, you can still earn on options.
Types of earnings on options:
- to increase market quotes;
- at lower prices;
- on the movement of quotes in a certain range (touching a given level or their breakdown).
Trading options for beginners implies a mandatory basic training program. Trading is a specialized type of business that has its own specific features. It is impossible to start trading in financial markets without the appropriate knowledge, necessary training, and some experience.
Therefore, at the initial stage of trading, all beginners should study how options are traded, learn the laws of the financial market, the psychological factors of Money Management rules, that is, risk and capital management. And in addition, the development of analytical forecasting of the movement of market prices will become the key to success for the trader. To do this, you will need to learn how to use statistical and global fundamental data in the analysis.
Instructions for beginners
Each novice trader before starting trading in the financial market must perform several actions. First of all, he needs to undergo training in trading.
Basic training:
- Terminology.
- Theoretical basis (laws of the financial market, rules of trade).
- Money management (money and financial risk management).
- The psychology of trading.
- Market movement forecasting (study of the basics of using analytical and statistical data, technical and fundamental market analysis).
After the beginner has studied the basic course, he must choose a trading strategy for himself, with the help of which he can earn money in the financial market in the future. And then get practice on a special virtual demo account, which completely eliminates any financial risks. And after receiving positive and stable results, you can move to the real market.
How to trade stock options
You can trade option contracts in any market where this tool is available. Along with futures contracts, they can be used on stock exchanges or in the derivatives market. Profit or loss in trading with options is calculated on the basis of accrual and write-off of variation margin. Usually this happens at 19-00 hours, and the trade itself is available from 10-00 in the morning until 23-50 according to the schedule of the derivatives market.
Option transactions are concluded using the guarantee guarantee reserve method. The trader selects the underlying asset for him with the previously known trading conditions and expiration time and concludes a deal. In order to make profit on the contract in the future, it is strongly recommended that all novice traders learn the basics of options trading and their specification.
Binary options trading
Unlike exchange options, binary contracts are the simplest and most understandable tool for beginners. The task of the trader will be the correct forecasting of changes in market quotes. The profit or loss on the transaction depends on how accurately the analytical forecast will be made.
For example, the speculator, after an appropriate analysis of the market movement for the asset he needs, decided to buy the Higher option, since, in his opinion, the price will increase in the future. He chose a bet size and expiration time and opened a deal. As soon as the binary contract expires, the position will be closed and the trader will immediately receive the result.
If the outcome is positive, the amount spent on the bet will be returned to his trading account, plus the winning profit, which was agreed in advance on the terms of the contract purchase. Suppose the amount of his transaction was $ 20, and the return on a trading asset was 80%, therefore, these $ 20 will be returned to his account, plus a plus of $ 16 gain. As a result, his deposit will be replenished by $ 36, since when opening a position, the amount of the bet was written off.
In those cases when the transaction closes with a loss, that is, the trader incorrectly predicted a change in market movement, only the bid amount will be debited from his trading account. As a result, in trading binary options all financial risks are limited, and the profit in case of successful trading is known in advance.
Mobile trading
Almost all brokerage companies where binary contracts are traded provide their customers with the opportunity to use mobile trading. This is a very convenient feature, since access to a computer or laptop is not always available. You don’t even need to specifically study how to trade binary options on your phone, since there is no difference between computer and mobile trading. The only thing a trader needs is to install a special trading platform on his phone, select a broker and enter his credentials for authorization.
According to traders, trading from a mobile device is not very convenient, as some functions are limited, but the whole basis for trading is available. That is, you can use some trading instruments, open and close positions, replenish your account and withdraw profits.
Mobile trading has one big plus - you can trade anywhere and anytime, the main thing is that there is access to the Internet. For example, on a walk, in lines, during lunch breaks or during outdoor recreation.
Options Forts: risk-free trading
Forts binary contracts and options are different tools. The fact is that their trading takes place at various sites. Trading with Forts contracts is traded on exchanges. In Russia, the main exchange trading platform is the Moscow Exchange, which provides traders with the opportunity to trade Forts options. Risk-free trading of options consists in the proper management of equity, financial risks and the choice of the most relevant trading strategy for a specific market situation.
For example, consider the Box Spread technique. Its essence lies in the simultaneous purchase of Call and Put options on the same trading asset. In this strategy, it does not matter for the trader which way the price will go in this case. He doesn’t even need to analyze the market movement. No matter where the market moves, it will still remain profitable, since a win will block a losing position.
Acceleration of deposit funds
Overclocking a deposit is a very important point for many beginners. Not every novice trader has a sufficiently large capital, and, moreover, any trade in the financial market is always an inherent risk. To increase trading opportunities and your capital, you need to know how to disperse a deposit on options using safe methods. The most promising method in trading for binary options is hedging transactions. You can use this method as follows:
- Conduct an analytical forecast of market movement and find out in which direction the quotes will move.
- Open a deal with pre-selected parameters and expiration time.
- Wait until the option expires.
- If the deal closes with a negative result, then open two positions at once in different directions.
- Analyze the position before the end of the expiration time and open an additional deal in the right direction.
As a result, one transaction closes with a negative result, and two others with a positive result. They will block losses and take the position to a plus.
Hedging can be used without waiting for the closure of the very first loss transaction. For example, when there is little time left before the end of the suction period and it becomes completely clear that the position will be closed at a loss, you need to open a position with an increased bid volume in the opposite direction for a shorter time range.
There are a lot of various options trading strategies in trading and how to disperse a deposit on options in a short time. The main thing is to be able to minimize financial risks and correctly predict changes in market quotes.
Choosing a trading strategy for trading
After completing a basic training course, each trader chooses the most suitable trading strategy for him. All methods in trading are divided into several groups:
- for short-term transactions;
- for long-term positions;
- for transactions with an average term or intraday.
The first option includes positions with expiration times from several minutes to several hours. Long-term deals can last even several months. In addition, trading strategies are divided by aggressiveness; the higher it is, the greater the financial risks.
For beginners, professionals are advised to use classic trading strategies, with risks no more than 1%, maximum 2% of the deposit. Whatever trader chooses a tactic, before you start using it, you need to carefully study the features of the trading strategy and description of options that are recommended for this technique, since they all have different specifics.
Trader Reviews
To profitably work in financial markets with contracts, you need to know how to trade options and be able to do it. According to traders, training in trading to achieve positive stable results requires several months. But, over time, with a sufficient return of time, patience and desire, beginners achieve their goals and earn money by trading options.