Let us get the proper understanding of options market
- Written by News Feature Team
You would already know that they are one of the highly risky investments. But you should also note that they are highly profitable which is why the Australian traders prefer it in the first place. There are many reasons along with the high profitably to enter the options market. If you ask the newcomers they would say that due to the lower capital requirement. If you compare the options to stock you would understand that options are far better than stocks. One of the major reasons is that options produce higher returns so the traders get attracted easily. There are brokerages which have set the limit for the margin for the naïve trader because the investment involves higher risks and it may lead to the higher potential loss. As an example, if you are a naïve trader you might have the limit to margin amount because you have zero experience level in trading but when you become well-versed the limitation will not be set. So, you will be able to invest up to any amount you prefer. You can become a professional options trader in no time but ONLY if you have the proper understanding of the options market.
High risk in options trading
Before you even consider the options market you need to understand the high risk involved in it.Unlike currency market, this market is very much sensitive to the trade timing. A single second delay in your trade execution will cost you heavily. In the eyes of the expert traders, this industry is only for the expert traders who have years of currency pair trading experience. You need to have very good knowledge in the fundamental analysis sections or else it will be tough to make profit regular basis. Most importantly without having the proper knowledge of advance money management, your investment will be at getting risk.
The differences between stocks and options
Actually, the stock is equity and when a person purchases the stock it gives him the ownership of the particular stock holding. Due to the simplicity and many other features the stock is considered as the liquid asset so it is compared to money. On the contrary, the option is a derivative of the stock. So the value of the stock will be based on the value of the equity. There are two parties involved in options trading and they are options buyers and sellers. Options buyers are the owners of the contract and have the complete right for the asset before it expires so the buyer has the right to buy or sell. But the options buyer is not a person who is obliged to do it so it means if the person doesn't want to buy or sell he can restrain. So, the next party is options sellers they own the contract but they have the obligation to buy and sell before a certain date. The only hope of options seller is that the buyer's expiration date should reach so they can gain the premium.
The online brokers
Many traders prefer to find an online broker because it is far better than the typical broker system. The system is directly connected to the firm so the account is controlled the by the brokerage. If the trader wants to make any order he or she can do it via the online broker and it will be directed to the brokerage. The whole procedure of the transaction happens smoothly. The whole procedure of placing order etc. happens in a second.
The expiry date
You should bear in mind that every option has an expiry date. The expiry date is called as the strike date as well because it is what decides the limitation of buying and selling of options. If the expiry date passes the options become useless. However, as the naïve trader, you should get the proper idea of trading options.
