Derivatives Options » Trade

Forex Trading an Overlooked But Very Lucrative Market

admin — Tue, 08 Dec 2009 00:12:15 +0000

One of the most appealing ways to attain wealth is to play the stock market. With the advent of the Internet and on line brokers traders have seemingly unrestricted access to various trading products that just 10 years ago were reserved for big financial institutions. A trading product that has been overlooked by many traders is forex.

Forex is derived from the words FOReign EXchange and involves the trading of currencies. Until relatively recently trading forex has been the preserve of banks and other large financial institutions. In the last 5 years forex trading has literally exploded among ordinary traders. When the advantages of forex trading become apparent this is not surprising. The forex market is the largest financial market in the world with an estimated daily turnover of $1.5 trillion dollars. This is 30 times larger than all the US stock markets combined. Further more the forex market is open 24 hours a day 5 days a week.

The size of the forex market is one of its first benefits. The forex market is very liquid and has high volume. Liquidity is a great asset many traders look for because it means a deal can always be done. Forex is a continuous 24-hour market. This is very desirable if you wish to trade part-time as you can choose what time you trade unlike stock markets that are open only 8 hours a day. This 24-hour market almost removes the problem of gapping. Because most stock markets are only open 8 hours a day often-overnight events can cause stocks to gap up or down. Large gaps can especially cause large losses for people who trade derivative products like futures or options. In the forex market the problem of gapping is very much reduced.

Currencies are always traded in pairs. Usually currencies are traded in pairs against the US dollar. The main pairs are US dollar Vs EURO ( EUR), British Pound (GDP), Swiss Franc (CHF), Japanese yen (JPY), Australian Dollar (AUS), New Zealand Dollar (NZD) and the Canadian dollar(CAD). There are other currencies pairs but most traders prefer to trade the pairs above. These currency pairs are known as the majors. Currency traders have plenty of trading opportunities from these 7 major currency pairs. Compare this against the stock market where more than 8,000 stocks trade on the three primary US stock exchanges and currency traders can focus just on these 7 pairs and still make plenty of money.

Unlike the stock market there is never bullish or bearish market conditions. Currencies go up or down against each other according to how the world financial markets perceive the value of the currencies. You can sell a currency (go short) just as easy as you can buy a currency( go long). Currencies go up and down and you can trade either direction just as easily ensuring there is always plenty of trading opportunities.

Forex brokers don’t charge commission or brokerage. This can be quite a large overhead in other financial markets. Forex brokers make their money on the difference between the bid/ask spread of a currency pair. As the forex market is very liquid the spread between the bid/ask is very small. As many stock traders know brokerage can be a significant transaction cost.

You can start trading forex for as little as $300 dollars. There are two types of accounts a mini forex account and regular forex account. Most forex brokers offer 100: 1 leverage which means a in a mini account you can control $10,000 currency position with $100.

In a regular account $1000 controls a $100,000 currency position. This provides great leverage and an extremely efficient use of trading capitol.
Trading a mini account is a great way on how to learn to how to trade forex. When you paper trade you are having a comfortable armchair ride. You are trading without the emotions of putting real money on the table. When you trade a 1 mini currency lot you can set your stop loss so the most you lose is $100. This is a great way to learn how to trade effectively without risking much money. In most other trading products even when trading with the smallest trading lot possible you would have to risk much more. Forex provides trading opportunities for people without much trading capitol.

Many traders have overlooked forex trading. It has many benefits that all traders can use to their advantage. It offers the benefit of trading 24 hours a day in any country in the world. The forex market is a very lucrative market no trader can overlook it.

Trade Binary Digital Options , Options Trading by Options247

admin — Fri, 27 Nov 2009 02:16:24 +0000

Binary Options Binary Options Trading : A Binary Options, also referred to as a Digital Options Trading or a fixed return option, is an option in which payout is determined at the onset of the contract. It pays a fixed amount of cash if the option expires in-the-money.

binary Options

A type of option in which the payoff is structured to be either a fixed amount of compensation if the option expires in the money, or nothing at all if the option expires out of the money.

These types of options are different from plain vanilla options and they are also referred to as “Fixed Return Options”, “all-or-nothing options” or “digital options. A Binary Option cannot be traded, once you buy one, you can’t change your mind and then sell it, the same way as in a European option

Binary options advantages : There are many advantages trading binary options such as their Potential short-term returns, limited risk, a Wide range of underlying assets, a low commission structure- the only charge is the dealing spread and their ease of use- you either win or you lose. Another advantage is that in times of high volatility you can buy them without worrying that youre paying a premium arising from inflated implied volatilities. – Binary Options , Options 247.

binary forex options Binary Forex Options – Options that allow the trader to limit his risk while increasing his profit and that is why the foreign exchange market offers the opportunity to trade these unique derivatives. Forex digital options let you wager on whether the exchange rate will trade above or below the strike price, at the expiration date or time of the binary option.

Binary Commodities Options Binary Commodities Options – Commodities are bought and sold on commodities exchanges around the world and are also known as raw Materials. Raw materials are important to the production process of any given country. Commodities digital options let you wager on whether the price of any given commodity will trade above or below the strike price, at the expiration date of the option

Trading Options – The Basics (Part One)

admin — Wed, 25 Nov 2009 12:50:15 +0000

Definition Mumbo-Jumbo
Options, unlike stocks, are derivatives. That means that their value derives from the value of another financial instrument (called the underlying). The underlying can be a stock or futures contact or an index. For the purpose of this article we’ll concentrate on stocks.
An option is a contract between two parties, the writer (the seller) and the buyer. An option gives the buyer the right to either buy or sell a stock at a pre-determined price. And so there are two types of options corresponding to those rights: calls and puts.
Example for Call Options
Say you go to the farmers market and find a stand where they sell some nice apples. You go to the farmer ask him how much a pound costs and he says 3$. You reach for your wallet and you notice you forgot it at home. The only cash you can find is some 30c in your pocket. So you say to the farmer “Sorry man, forgot my wallet. Can you put away a pound for me and I’ll be back in two hours to pick it up.” The farmer answers, “Nah, I won’t. I might sell it before then.” And then you say, “Ok, all I got is 30c. I’ll give that to you now and when I come back I’ll pay the full 3$. All you have to do is keep it for me for 2 hours. If I don’t come back you can still sell to somebody else”. To which the farmer agrees because he’s going to be around anyway and he’d make 30c profit.
So what just happened is that you and the farmer entered a contract. The farmer “sold” to you the right to buy 1 pound of apples. This right cost you 30c and it is valid for the next two hours (assuming the farmer is an honest man).
Translating this into options jargon: you bought a call option on 1 pound apples at a strike price of 3$. The premium you paid for that option is 30c. Expiry of those options is two hours from now. After that time they will be worthless. You can exercise that right within those two hours and buy the apples for 3$. You can also choose not to exercise it. In both cases the 30c premium is non-refundable.
Let’s continue our example. Say that after you leave a big queue starts to form at the farmer’s stand. The farmer notices that his apples are very popular so he decides to be cheeky and to raise the price to 4$ a pound. You come back and discover that the price is higher.
You have two choices: you can claim your right to buy a pound at 3$ instead of the current price. The farmer would honor his obligation and sell the apples to you. OR, you can go to someone in the queue and tell him “Look man, an hour ago this guy was selling the apples for 3$ a pound. I have an agreement with him to buy a pound at 3$. If you give me 50c I’ll talk to him to sell to you for 3$ instead of 4$.” A quick calculation reveals that a pound at 3$ plus 50c premium is 3.50$ which is still less than the current price at 4$. So the guy agrees to buy the right from you.
Options jargon: you bough the option for 30c. You sold it for 50c. That is a 66% return on your money. And you never even had to buy the underlying (the apples).
And this is exactly what option trading is about. Say you anticipate a price rise. Instead of buying the stock, you buy call options for a fraction of the price of the stock. When the stock advances you sell your options for a profit.
Ok, but what do you do if you expect the price to fall? You buy put options. These are the topic of my next article.

Trading Options – The Basics (Part Two)

admin — Wed, 25 Nov 2009 00:43:23 +0000

Definition Mumbo-Jumbo
Options, unlike stocks, are derivatives. That means that their value derives from the value of another financial instrument (called the underlying). The underlying can be a stock or futures contact or an index. For the purpose of this article we’ll concentrate on stocks.
An option is a contract between two parties, the writer (the seller) and the buyer. An option gives the buyer the right to either buy or sell a stock at a pre-determined price. And so there are two types of options corresponding to those rights: calls and puts.
Example for Put Options
Say you own a thousand shares of BHP stock currently worth 30$ each. You know that reports are coming out soon but you have no idea whether they are going to be positive or negative. If positive the price will go up, that’s easy.
In case BHP reports badly you know you will be selling. But you also know that everybody else will be selling too. This will drive the price down and you will incur a loss even if our order gets filled. Now, wouldn’t it be great if you knew beforehand what BHP was going to report? If you knew and sold that would be insider trading, which is illegal and “that never happens in Australia”. The next best thing would be to secure your right to sell at the current price of 30$ per share. As we know, there is no such thing as free lunch. So, in order to secure this right, you have to pay a premium. And you need someone to sell you that right.
This right is a put option. It is a contract between you and the other guy that gives you the right to sell stock to him at 30$ no matter what. So if the stock drops to 20$ you can exercise you right to sell it for 30$. Or, if you think that the stock has reached its bottom you can keep the stock and just sell the put options you bought previously. Now think, the stock price is 20$ and you are selling the right to be able to sell it at 30$. Of course that right would be worth much more than when you bought it for (because back then the stock was at 30$). So, the more the stock drops the more valuable the put option becomes.
A pure options trader wouldn’t have any stock to sell. His goal would be to buy puts when he expects that a stock will go down. After the stock has dropped the options trader will seek to sell the option for a profit.
So you see, it does not really matter where the market goes, up or down. Trading options enables you to profit from both directions. When you expect the price to go up you can buy the shares or attain higher leverage by buying calls. Should the reverse be the case, you can buy puts. To me, puts are easier to understand than selling stocks short. And believe it or not, there are options strategies (combining calls and puts) with which you can profit from sideways movement. But let’s not get ahead of ourselves.