Four Things to Consider Before Investing in the Financial Markets

 Option Trading  No Responses »
Jan 032010
 

Are you ready to make money in the stock market? Investing is an important step towards building your personal wealth, and there are many things to consider before you begin.

Your present financial situation

You need to begin by evaluating your current financial situation. Consider your assets, your liabilities, your total household income and the amount of discretionary income that you have available to invest on a monthly basis. Your discretionary income is the income that you have left over each month after you pay all of your household expenses. Next, you need to evaluate your current level of cash reserves. Cash reserves can be defined as the assets set aside in the case of an emergency or for an opportunity. An example of an opportunity would be a great investment, a real estate property that you want to buy or a great vacation discount that you want to take advantage of. It is recommended that you keep between 3-6 months of your total household expenses set aside as cash reserves. The other factor to consider is the level of your personal protection. Your most important asset is your ability to earn an income. Protecting yourself, your home, your vehicles and your family is important. Evaluate your levels of insurance coverage to determine whether it is sufficient to cover your present needs.

What are you saving toward?

Everybody saves for a purpose. Some people save to ensure a better retirement. Some people are saving to buy a car, home or a new boat. Some are saving to ensure that their children have a great college education. Before you begin to save, sit down and think about all of your goals, and then prioritize them based on personal importance. Ask yourself whether these goals pass the acid test. The acid test asks if you would be willing to do whatever it takes to achieve these goals. For example- Would you reduce your lifestyle and expenses to save more money if it would ensure that you reached your goal? If a goal does not pass the acid test then you should remove it from your list. Next, define each goal with a time frame and an amount. For example- I need to have $50,000 saved for my oldest son by 2010 to pay for his education, is a clearly stated goal. Once you have defined your goals, determine the dollar amount needed to save to achieve them and the length of time you have to save for them. These factors will be taken into consideration when making your individual investment selections.

Do you understand your investment options?

Consider investing into mutual funds if you are a new investor into the stock market. Mutual funds are comprised of multiple individual stocks or bonds and usually offer a smaller initial investment amount to be contributed on a monthly basis. This smaller dollar amount makes it possible for a variety of investors to begin saving into the stock market without large sums of cash already set aside. Understanding stocks, bonds, mutual funds, real estate investment trusts, cash value life insurance, annuities and trusts is an important place to start when you are a beginning to invest. Research each investment option to determine which combination will best assist you in reaching your financial goals.

Define your Investment Risk Tolerance

Now that you have an understanding of the stock market, you need to determine your personal risk tolerance before you start to invest. Your risk tolerance refers to the amount of variance you are comfortable with in your portfolio, and is often defined by how far away the goals that you are savings towards are. Investors are typically categorized as Aggressive, Moderately Aggressive, Moderately Conservative and Conservative. Each investor type is characterized by their investment portfolio, their time frame to save, their expected portfolio returns and their overall tolerance to withstand portfolio value changes on an annual basis.

These are the most important things to consider before you invest into the stock market. Having a financial plan that you implement will increase your chances for financial success.

This is not investment advice. Before implementing any investment strategies, consult your financial advisor or financial professional.

 Posted by at 3:42 am  Tagged with: , , , ,

What is theWizard?

 Option Trading  No Responses »
Jan 022010
 

The Wizard is an online stock trading tool that helps investors choose which stocks to buy. This service is based on the Wizard’s proprietary trend indicators which tell investors when to buy and sell their stocks. Every week the site’s stock picker provides its members with a list of those stocks that are the highest ranked. You can buy them or sell them, take out your profits, and enjoy your success.

This is a very easy process. It is like having a professional trader who guides you in each and every step. The Wizard allows for a completely different approach to stock trading than the traditional investment model. You no longer have to follow the buy and hold approach of investing; wherein one purchase stocks and holds onto them hoping to experience long-term gains. The Wizard allows you to choose your investment strategy and will work for both short and long term investors. The Wizard’s online stock trading software monitors your investments for you and tells you the ideal time to sell them. This trend indicator is a precise tool that has proven successful in the last twenty years at picking the big moves in the stock market.

Once The Wizard’s stock picking software gets the up or down market indication, it uses its proprietary algorithm to scan a database containing more than eight thousand stocks. There are some weeks without any signals, whereas others may have as many as ten. Using the Wizard’s algorithm takes the guesswork out of online stock trading by offering you the precise price and profit margins for your stocks. It offers both a conservative and an aggressive scan. The best stock picks are selected every week by a companion program called the Wizard Picks.

Friendly, effective and fast customer service that will answer any questions you have about the Wizard’s stock market software or investing.

 Posted by at 4:15 pm  Tagged with: , , , , ,

Popularity of Day Trading Goes Up With the Market

 Option Trading  No Responses »
Dec 212009
 

Are You Really Researching Day Trading? As the market rebounds from crash in ‘08 and the early decline of 2009, more and more online investors are once again turning their sights to day trading. I wonder, when Edison invented his ticker tape machine, if he could foresee the future he helped to create. The tape has been replaced with a digital screen, but the effect is the same, instant gratification. With the right training, knowledge, and software program, anyone can trade with the pros. Yes you can trade with them, but does that make you one. Before we can determine what a day trader is, we must first investigate the term and meaning as they relate to you.Many so-called experts lump all online traders into the bag of day trading. For the sophisticated observer it is plain to see the obvious differences. A day trader rides the rush of the asset, while a swing trader diagnosis the trends and holds onto it as long as the momentum  last. I don’t know if the term “day trading” ever existed before we had access to the internet. If it did, I some how would picture a broker becoming a bit frazzled, trying to keep up with this mad client who is buying and selling at the speed of light. Because this, is the life of the day trader. They do not care about fundamentals or even for that matter what the company does. They are riding the trend, up or down it doesn’t matter, as long as the asset is behaving the way they have projected it would. Day traders don’t care what markets they are in, be it stocks, options, currencies, or futures, they get in and out with a fast profit. A transaction may last a few minutes, an hour or so, but never more than that day.So it is online trading, which includes day trading, that is regaining momentum. All part time traders are swing traders, because you simply can’t monitor an asset that you might want to transact at any second, on a part time basis. These rebels of tradition are literally traders, rather than investors, but can reap huge rewards in a relatively short period of time. Of course, day trading for a living does carry some fairly large monetary risks, so you must know exactly what you are doing from the time the markets open to when they close. This is the itinerary of a day trader. If you can’t commit or don’t have the time to pursue this strategy properly, I suggest you look into swing trading.Swinging  for a Home RunLess Risky In a Stable MarketSwing trading can be a part time effort.  These types of trades are ones that last longer than a day and can run a course of up to a few weeks, as an average.  Swing trading is traditionally considered a low risk venture. Especially for those who trade the large cap stocks. But is there really such thing as low risk in these volatile times? Of course you can always just keep shorting the market. I think that can be the most risky in our current atmosphere. Some experts will tell you that swing trading only works in a stable market, where the prices don’t fluctuate.   I think most regular folk always saw the market as a playground for the big cats. That was until the influx  of trading companies to the internet. So how much investment capital should you have? To quote the investment companies disclosure, and I’m paraphrasing; “never invest more than you have to lose”. It is like gambling, make no mistake about it. However instead of just rolling the dice, putting your chips all on lucky #7, or hopelessly watching the little pea spin around, you can learn what is the equivalent of counting cards. This brings us right back to knowledge, training, and you can never forget the software. Let us assume that you have some knowledge or you wouldn’t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data is to small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one to two hundred dollars)Let the Candle Lead the WayInclude Candlestick Charting for Greater ProfitsFor those of you not yet familiar with candlestick charting, I will try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if we simply break it down to the ticks on the chart you follow everyday. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, So our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

 Posted by at 3:27 am  Tagged with: , , , , , , , , , ,

Swing Trading…Less Pressure Than a Day But Big Rewards

 Option Trading  No Responses »
Dec 202009
 

Between Day Trade and TrendsIf you are not a day trader or long term investor, you are a swing trader. It usually means you are holding on to a stock for at least a few days, but not more than a few weeks. Swing trading is traditionally considered a low risk venture, especially for thosewho trade the large cap stocks. But is there really such things as low risk in these volatile times? Of course you can always just keep shorting the market. I think that can be the most risky in our current atmosphere. Some experts will tell you that swingtrading only works in a stable market, where the prices don’t  fluctuate. I think most regular folk always saw the market as a playground for the big cats. That was until the influx  of trading companies to the internet. So how much investment  capital should you have? To quote the investment companies disclosure, and I’m paraphrasing; “never invest more than you have to lose.” It is like gambling, make no mistake about it. However instead of just rolling the dice, putting your chips all on lucky #7, or hopelessly watching the little pea spin around, you can learn what is the equivalent of counting cards. Before we go any further, I would first like to determine that you are indeed researching swing, and not day trading. All part time traders are swing traders, because you simply can’t monitor an asset that you might want to transact at any second, on a part time basis. These rebels of tradition are literally traders, rather than investors, but can reap huge rewards in a relatively short period of time. This is the itinerary of a day trader. If you can’t commit or don’t have the time to pursue this strategy properly, I suggest you do indeed look into swing trading. Please don’t misunderstand me, swing trading can be a full time job as well, and for thousands it is. You just can’t do day trading part time.

Make no mistake however, in both strategies as with anything connected with investments, you had better be knowledgeable. Always have an exit plan or stop loss in place and it is essential that you have an excellent technical charting platform.   Knowledge and Training Lead to ConfidenceConfidence Leads to ProfitLet us assume that you have some knowledge or you wouldn’t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data are too small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one and two hundred dollars)Let the Candles Light Your WayInclude Candlestick Charting for Even Greater ProfitsFor those of you not yet familiar with candlestick charting, I will try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if we simply break it down to the ticks on the chart you follow every day. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, So our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

 Posted by at 3:15 pm  Tagged with: , , , , , , , , , ,

What To Know About Day Trading…Strategies That Ensure Profits

 Option Trading  No Responses »
Dec 202009
 

Is it Day Trading Or Something Else?There is this misconception about day trading that need to be cleared up. I ‘ve always thought of day trading as trades opened and closed in the same day. This may seem very obvious to most of us, however, there are so-called experts who lump all online traders into the bag of day trading. For the sophisticated observer it is plain to see the obvious differences. A day trader rides the rush of the asset, while a swing trader diagnosis the trends and holds onto it as long as the momentum  last. So where does that leave you? I don’t know if the term “day trading” ever existed before we had access to the internet. My definition is that of a person who might be trading at the speed of light. You might laugh, but this is the life of a day trader. They do not care about fundamentals or even for that matter what the company does. They are riding the trend, up or down it doesn’t matter, as long as the asset is behaving the way they have projected it would. Day traders don’t care what markets they are in, be it stocks, options, currencies, or futures, they get in and out with a fast profit. A transaction may last a few minutes, an hour or so, but never more than that day. They also must adhere to a set of strict rules and regulations, including maintaining an account that doesn’t fall less than twenty-five thousand. For complete details on all the rules, please refer to the SEC web site.So now you can determine what type of a trader you are thinking of pursuing. Are you a real day trader, or perhaps, swing trading is more what you were intending to research? Swing traders can do a limited amount of intra day trades without incurring  any penalties. A great way to determine which strategy is best suited to your needs, is to first decide if your plan is to pursue this on a full time basis. You cannot be a day trader part time. With the proper software you can swing trade while keeping your job or enjoying your retirement. Swing trading is traditionally considered a low risk venture, especially for those who trade the large cap stocks. But is there really such a thing as low risk in these volatile times? Some experts will tell you that swing trading only works in a stable market, where the prices don’t fluctuate, but I feel that if you are properly trained you can make money no matter what the market is doing.   I think most regular folk always saw the market as a playground for the big cats. That was until the influx  of trading companies to the internet. So how much investment capital should you have? To quote the investment companies disclosure, and I’m paraphrasing; “never invest more than you have to lose.” It is like gambling, make no mistake about it. However instead of just rolling the dice, putting your chips all on lucky 7, or hopelessly watching the little pea spin around, you can learn what is the equivalent of counting cards. There are three basis fundamentals, I believe that every foundation for sound trading should be built upon.   Knowledge    Training    SoftwareKnowledge Leads to TrainingTraining Leads to KnowledgeLet us assume that you have some knowledge or you wouldn’t be researching the market. Any training you receive should be for technical analysis, or you are just wasting time and money. As far as software platforms, the following suggestions I strongly feel are necessary for any software to be useful.1. It must be able to offer live streaming technical data.    (Otherwise the program is merely educational)   2. The platform should defiantly include candlestick charting.3. Visually it has to be large enough for all the data to be seen easily. (Many of the online brokerage’s technical data is to small to be useful) 4. It must be cost effective. (Most good systems can be purchased for between one to two hundred dollars)It is No Longer a Simple Stock TickCandlestick Charting Will Light the Way to ProfitsFor those of you not yet familiar with candlestick charting, I will try to give a brief but accurate explanation.  The Chinese invented the market concept, and the Japanese perfected charting techniques with the use of the candlesticks. It is easy to understand this complex system, if we simply break it down to the ticks on the chart you follow every day. We know that the lower tick is where the stock opened and the higher is where it closed. Now if we made the two lines parallel and connected them, what would we have? A candle. However, during that movement, the stock might have gone lower or higher then where it opened or closed, so our candle has formed a tail and a wick. Is it starting to make a little sense to you? Can you see the advantage of knowing this information, for getting in and out, and setting a stop loss?I don’t profess to being an expert, but I do know of some. I obviously don’t have the time to go into all the details now, but at my site  Market Mentalist you will find all you need to know about investing online. There is access to some of the top trading systems available including software, books, newsletters, and Forums. Whether you are an inquisitive novice or a seasoned pro Market Mentalist offers the online investment resource you just might be seeking.

 Posted by at 4:25 am  Tagged with: , , , , , , , , , ,

Online Trading

 Option Trading  No Responses »
Dec 172009
 

With the advent of online trading, many new investors are drawn into the world of stock market trading. Fortunes can be made and lost without leaving the home. However, before embarking on this new life, any investor should consider their strategy for sound investment and not gambling to help protect themselves from what can be a very tempting albeit confusing world of internet stocks.

The only consistent notion about stocks is that they are inconsistent. Investors that make decisions based entirely on emotional ‘gut feelings’ or make decisions based on desperation will only do about as well as they will at the casino. Planned, precise, and well thought out decisions make for strong trades. Online stock trading need not be a random roll of the dice.

Regardless of any pre-planned strategy with which an investor approaches the online trading world, there are two basic facets of any strategy. All trading is based on maximizing the profits while minimizing the risks. These two factors also tend to cancel each other out. The greatest risks usually turn the greatest profits while the smallest risks typically turn tiny but long term profits. This means that an individual investor needs to find their individual risk tolerance while building their strategy.

There will be losses. There’s no strategy in the world that can guarantee online stock trading without loss. Loss is part of the game no matter how serious the player. The most successful online stock traders in the world have one basic rule implemented into their trading strategy. They all have their stock portfolio divided into percentages. They have a predetermined percentage seeking high risk / high return stocks, a predetermined percentage seeking medium risk / medium return stocks, and a predetermined percentage seeking low risk / low return stocks. The predetermined percentages vary from investor to investor and some have the bulk of their percentages in low risk while others have the bulk in medium risk. Placing the bulk of the available funds in high risk stocks is a sign of either gambling or desperation, neither of which can be considered a very sound strategy.

The reason that these percentages are predetermined for the vast majority of successful online investors is to help maintain unemotional investing. If there is a set proportion of the available funds doing predetermined job, then the emotional highs and lows will not deflect the investor from their pre-determined strategy. Online stock trading can become emotional, and without discipline traders start making bad decisions based on their emotions. Keeping the emotion-led trading to a minimum is very difficult for many online traders, but it is a discipline that must be acquired.

Every individual investor’s strategy will vary to suit their needs, their risk tolerance, and their individual style. However, having a basic strategy before the account is even opened is a vital key to online stock trading. Investors without a strategy tend to lose more often than they succeed. Every individual investor’s emotional strings are different, and some will need firmer, more complicated rules before setting off into the online investment world. Others will do fine with a basic outline. While learning the ropes, it is best to dabble with small sums of money rather than place large chunks of money into any stock, no matter how good it seems. One of the most significant pros to online stock trading is the investor’s ability to go through the motions on paper without ever spending a dime while they keep an eye on the stocks they believe they are interested in. Over time, online stock trading can become a very healthy form of secondary or even primary income, but the investor has to start with a plan.

 

Bill Stewart is a work-at-home geek specialising in online options trading. For more information visit his website Online Trading Stock And Option

 Posted by at 3:24 pm  Tagged with: , , , , , , ,

Breakthrough Trading With Surefire

 Option Trading  No Responses »
Dec 162009
 

The largest financial market is the forex trading market. The market offers best benefits to the traders and its sheer volume facilitates the price stability in the worldwide market conditions. The market has turnover of 3.2 trillion dollar.

Traders should have absolute confidence in the trading method, which they use. Surefire gives a method which helps the trader get a breakthrough in trading and have a complete knowledge on unfair risk and also on the winning edge. It helps the trader with some simple indicators and technical market analysis that gives a consistent and accurate data and guides the trader where to get in and out of the market with a huge profit. This unique discovery has a combination of simple techniques, which helps a trader get a Breakthrough in Forex trading market. Forex trader should have mindset, money management and proper trading method to buy and sell.

There is an excellent program called ‘Risk Probability calculator’ that forecasts and creates a breakthrough in trading as to the entry order, their stop loss order and their exit order and make good profit. It is very good for the new traders as the market hits the best point predicated in the surefire trading. The calculations are based on sound maths and not on accidents and it give all the information. Mark McRae introduced this system.

Traders can be successful only if they follow a well laid trading plan. Traders earn twice the profit in the surefire trading by following this method. Forex Inter Bank offers a profession forex course to practice trading and to improve the speed. Trader should understand the high and low level strategy and make profit, which is easy in surefire trading. One should learn the lessons in trading from the experts and should also apply the important components in surefire trading. The day traders should apply direct access in the forex market. It is easy to read an individual price bar in surefire trading which helps to attain breakthrough. One should also know to anticipate the top and bottom using volume and execute it in the surefire trading. It is also easy to do direct access trading in the forex.

The Surefire-trading plan gives a complete plan for a trader in a simple system to start being a profit taker in any market condition. The trading pattern works with very high accuracy rate in any market condition to create a breakthrough in profits. The CPI, PMI and ECI are explained clearly to enhance the knowledge of any average trader. Forex trading carries a high level of risk, and is not suitable to all investors. The investors and traders who have interest in forex trading shall be benefitted with all the technical information and the charts present in this e-book. It can give a complete breakthrough in forex trading both for daily and weekly trades thereby giving huge profits to the trader.

 Posted by at 3:44 pm  Tagged with: , , , , , , , ,

A Trading Strategy That Consistently Beats All Major Indexes

 Option Trading  No Responses »
Dec 132009
 

Are you looking to outperform the market and optimize your profits but are not sure how to pick the right stocks? Has investing become a chore? Do you find yourself investing in hot stocks after they have made their big move? Would you like to learn how I increased my portfolio by over 400% in under 7 years? Do you want to discover how I have outperformed the market over the past 3 years by a margin of 5 to 1?

Do You Hate Research? . . . I do!

I have always wanted to find an investment strategy that made sense. An investment strategy in which I do not need to know the intricacies of the market, predict market trends or follow specific stocks. How can I get the inside information of what is hot before the rest of the market knows? I can’t. Nor do I need to.

Plus, I don’t have that kind of time to commit to in-depth research. Like you, I have a regular job that I need to devote my time to. I am not a day trader; nor do I want to spend all of my free time on the computer doing research. Always following the stock market and getting stock quotes is not how I want to spend my free time.

I Avoid Individual Stocks . . . they are too unreliable!

Everybody wants to buy low and sell high. While millions of people do make money this way (and many millions loose money), I have found an easier and more effective way to use the market to my advantage. I do not trade in stocks. I do what I can to avoid individual stocks. And I consistently beat the market . . . month after month after month.

If not stocks, what’s the alternative?

Like many people, I got heavily involved in the stock market in the mid to late Nineties. Tech stocks were going through the roof and I, like everybody else, wanted a part of the action. It seemed an easy way to make money. Everybody was getting rich. You did not need a special investment strategy to beat the market.

During this time, I engrossed myself in the financial markets. I wanted to learn as much as I could without giving up my day job. I was trying to find the next best tech stock, IPOs and the occasional pre-IPO offering. But it was not until I discovered options trading that I discovered an investment strategy (The Yager Trading Strategy) that can work in any kind of market . . . Bull, Bear or stagnant.

That’s right…OPTION trading!

And I am not talking about stock options or writing covered calls. Options trading…I started selling options on S&P futures, using different methods and trading strategies. And I did well. VERY well.

Between July 1998 and January 2000 (a span of 18 months), from my option trading system, I turned an initial $25,000 investment into $167,615. That’s over 670% increase. And this was not paper money where you buy a stock and it has a certain listed value. This was real, taxed income. Profits collected on a monthly basis.

Market fluctuations and volatility have diminished greatly since then…reducing the premiums. Those types of returns are no longer available, but the option trading strategy is still very sound. I still consistently beat the market. Even the years the DJIA, Nasdaq and S&P were all down, I posted more than a 22% gain.

Learn the option trading strategy or see how to make money with this strategy. I describe the strategy and show actual recent trades on www.yagerinvesting.com. The information is FREE. No subscription required. This is a method for risk capital only.

For the preceding 12 months (May ’06 through April ’07) this is how my strategy, The Yager Trading Strategy, performed:

DJIA……………………..20.3%

NASDAQ………………..14.7%

S & P 500………………..17.3%

Yager Trading Strategy….32.2%

Learn the strategy for FREE.

http://www.yagerinvesting.com

adam@yagerinvesting.com

 Posted by at 3:26 pm  Tagged with: , ,

Are Futures Riskier Than Options

 Option Trading  No Responses »
Dec 132009
 

Let’s face it, derivative trading is risky. Period.
Derivatives such as futures and options are leverage instruments and by virtue of being leverage instruments, derivatives inherently carry more risk and exposure than pure and simple stock trading. Leverage instruments are risky because leverage allows you to do more with the same amount of money than you would normally be able to. Yes, leverage instruments such as futures and options have the potential to generate over 10 times more profit on the same move on the price of a stock than just buying the stock itself.
What most beginners to derivatives trading do not take into consideration is the fact that leverage is a double edged sword. Just as it could help you generate over 10 times more profits on the same move, it could also incur as much losses should the stock move against your favor. This is also why many beginners to futures or options trading lose their shirts so quickly and go broke.
So, why is futures and options trading still so popular then?
Very simply, most beginners with only a small fund and wants to build up a significant fund quickly could not depend on simple stock trading for a start. They need more leverage and they can afford to take more risk since the amount at stake is usually pretty small. With this in mind, the only question that remains is, which is safer for beginners? Futures or Options?
To determine which is riskier, we need to ascertain certain the qualities that constitutes “Risk”. For derivative instruments, the main qualities that constitute trading risk are: Leverage, Liability, Liquidity and Versatility (fulfillment obligation is usually not a concern in trading as traders rarely hold till expiration).
Liquidity in the stock futures and stock options market is definitely lower than the stocks themselves but is enough for the trading purpose of retail beginners and shall be excluded in this discussion.
Leverage
Leverage of futures and options is the multiplication effect on your money versus buying the underlying stock itself. We shall not go into detailed discussion on how leverage is being calculated for futures and options here. It suffices to know that the higher the leverage, the higher your potential profits and losses becomes. Leverage in futures is a lot higher than the leverage in stock options due to the much higher lot size and low margin requirement. This makes futures trading riskier than options trading in terms of potential losses due to leverage.
Find out how leverage is calculated in options trading at http://www.optiontradingpedia.com/options_leverage.htm .
Liability
Liability here means the maximum amount of loss you bear when things go wrong. Yes, we all make wrong investment decisions all the time and derivative trading is no exception. When you buy stock options, the maximum loss you can sustain is the amount of money you used in purchasing those stock options. When things go wrong, those stock options become worthless and you can lose no more than that. However, in futures trading, you are exposed to unlimited liability and will be made to top up your trading account with the daily loss amount in what is called a “Margin Call”. As long as your position continues to go south, you continue to top up your losses until you go broke or the stock gets to the bottom. Either way, you could have lost all your fortune in one go. That risk along with the fact that you have higher leverage in futures trading makes futures trading a lot riskier than options trading.
Versatility
Versatility here refers to the ability to profit in more than one direction. Logic says that if you can profit in more than one direction, risk is much lower than when you can only profit in one direction, right? Yes, stock options trading is highly versatile as there are options strategies that can be created to profit from 2 or more directions! Futures trading is basically single directional. You are either the short or the long. Never both, unless used in combination with the underlying stock, which increases capital requirement and defeats the purpose of leverage.
Get a full list of Options Strategies at http://www.optiontradingpedia.com/options_strategy_library.htm .
In conclusion, futures trading is riskier than options trading for the retail beginner to derivatives trading because of higher leverage, unlimited liability and lower versatility. This is also why options trading is slowly taking over as the derivative instrument of choice for the beginner derivatives trader. To learn all about options trading, please visit http://www.optiontradingpedia.com .

 Posted by at 4:45 am  Tagged with: , , , , , ,
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