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Options Trading

Understanding Futures and Options Trading


Futures trading is a risky business. It is a financial gamble. And, like any gamble, you will never know when you will win and when you will lose. The key is simply to play the game based on the cards you are dealt with, what you know about the market so far and hope for the best.

Many traders are lured into futures trading because of the great rewards it can potentially bring. However, you must keep in mind the rule of opposites, in that with great rewards, also come great downfalls. Futures trading, because you're gambling with something that is yet to happen, is nowhere near accurate.

This can also happen when you're dealing with options, because, the value of underlying options are basically placed against futures contracts. When you acquire options, more likely than not you will get them at a discounted rate based on the price of the product at the time they were issued.

Many find stock options trading attractive because it allows people to acquire stock at a discounted price. With this procedure, holders of stock options hope that the shares' value will increase within the period of time given so that they could sell at a higher price and generate a profit.

Options may be exercised at a given time in the future and at the rate at which they were issued, but the holders stand to gain or lose depending on the value of the options at the given future date. Thus, when you really look into the nature of futures and options, they are very similar and related.

Tips on trading pptions and futures:

- Trading options and futures requires research on your part

Futures trading involves 4 investment categories: namely, speculation, growth, inflation hedges and income. Without adequate knowledge of these four, you won't be able to move freely in the trading market and might even cause yourself to lose.

Do not simply rely on somebody else to do the research and understanding for you. Being able to make intelligent decisions, no matter how inaccurate, will sometimes make the difference between a win and a loss.

- You should invest no more than 10% of your net on futures

Futures trading should not be your first foray into financial trading because it involves a considerable investment. You should only do it when you're confident that you have enough knowledge and that your other investments are working out for you.

- The market is unpredictable.

No matter what experts say or predict will happen to the market months or years from now, nobody will be able to make perfect forecasts. Therefore, if you're planning to invest your hard-earned money into financial trades, do not put all your eggs in one basket.

While it is possible that you will make a fortune out of this risk, it is also likely that it will be the one that will send you to the poorhouse. Tread carefully.