One of the strategies of successful stocks trading is portfolio diversification. This has to do with bringing together various strategies and income generating thrusts. Many stock traders have various investments in their portfolios. Common strategies include stocks, bonds and mutual funds. The fray of money and stock markets presents numerous securities that hold a plethora of opportunities that traders can seize to consolidate their investment portfolios. Stock options trading is one of the great ways of diversifying one’s trading and investment portfolio. This kind is normally suited for sophisticated traders and investors, yet, anyone willing to learn what it takes to conduct stock trading effectively can cut it in this stock trade realm.
Besides enabling the trader to diversify his or her investment portfolio, there are many advantages of stock options trading. The power of trading options lies in the versatility of the options. Options give the traders the leeway to adjust their positions in line with rising situations. Options can be viewed from both a conservative as well as speculative angle. What the foregoing viewpoints mean is that traders can strategize around protecting their positions from pending declines while they also have the ability to bet on the market movements and indices.
Juggling with these possibilities, nonetheless, is not without costs. Options are part of a complex securities cluster and these can be very risky. This is why options trading normally comes with a stern disclaimer usually worded as follows;
“Options involve risks and are not suitable for everyone. Option trading can be speculative in nature and carry substantial risk of loss. Only invest with risk capital. ”
Grasping some knowledge and concepts on the advantages of stock options trading is the best way to decide if you are cut out for this kind of trading or not. Just like one of the top billionaires says, risk is not knowing what you are doing, options trading poses almost obvious risks to traders that come to it as a surefire way of making money. A good starting point would be going through a comprehensive stock options trading course and learning the fundamentals of conducting meaningful trade in this stocks sub domain.
Types of Options
The elementary calls and puts options are often referred to as plain vanilla options. These are the easiest type of options and any beginner trader can easily grasp how this type works. Options can also be classified in these two main categories; Long Term Options as well as Exotic Options.
Many traders are familiar with short term options. There are, however, some options which have holding time frames that can stretch up to a year or two or even multiple years. These kinds of options are suitable for long term investors. The options are known as Long-term Equity Anticipation Securities (LEAPS). The options are similar to regular options in that they enable holders to speculate as well as to control and manage risk.
The advantage of these kinds of options is that they provide these opportunities for an extended period of time. LEAPS are not available on all stocks yet they are available on many commonly held issues.
Owing to the versatile and robust nature of options, there are many nonstandard variations that traders can encounter or bring about. These are called Exotic Options. Exotic options are either variations or extensions of the payoff profiles of the simple calls and puts (vanilla options) or they can be totally different products with some form of optionality loaded in them. For more information on the more sophisticated stock options types we recommend this Investopedia resource. The resource clarifies the difference between exotic options and standard options.
Automatic Forex System Trading: Sounds Great, It Sure is, But…!
As the phrase suggests, automatic forex system trading is all about harnessing the power of innovation and relying on technology for the optimal execution of crucial forex trading actions. We have already debunked the fallacies of plunging into forex trading hoping to scoop easy profits even through the use of automatic forex trading systems and other trading platforms. This article assumes you have at least looked at the resource on whether you can really make money trading forex. In this section we explore aspects of automatic forex system trading and the winning approaches to using these so as to rake in maximum profits.
Once more, the use of any trading system, no matter how much of trading activity is automated, does not in any way replace the need for the trader to learn and get a good grasp of how forex trading works.
Forex trading is all about buying and selling currency pairs. As a trader your objective is to identify currency pairs with one currency which is gaining strength over the other and then executing a profitable move. Auto trading allows you to define a custom set of conditions that form the basis on which buy and sell moves must be executed.
Automatic forex system trading is meant to address the dynamic of decision making in forex trading. Unlike in demo account forex trading, real time forex trading comes with real risks and this places immense pressure on the trader. Under severe pressure, the trader is vulnerable to making poor trade decisions. An automatic forex system trading comes in to automate the execution of trade decisions and activity and keep impulses and emotions out of the trading process.
In forex auto trading the buy and sell orders are placed automatically on the basis of how the underlying system or program works. The system works in such a way that the buy as well as sell orders are sent out to be implemented in the market when a particular set of conditions is met. Automatic forex system trading is conducted largely by active traders who enter and exit positions more frequently in comparison to long term investors.
Since 1999 companies have been able to create retail forex platforms and these are carrying the automated trading activity across the cyber landscape.
Advantages of Automated Forex System Trading
One of the obvious advantages of automated trading is that in this approach traders can implement more trades per market than human traders. Traders in this kind of approach can replicate trade actions across many markets and timeframes. Clearly, this approach gives traders a great advantage in the aspect of the capacity of the profits the traders can make.
One of the great advantages of using automated trading systems is that traders using such a system will not be vulnerable to psychological pressures that tend to influence impulsive and irrational trade decisions that often lead to significant forex trading loses. In this context, the basis of good trade conditions is maintained in the system and the trade actions can only be executed when the defined set of conditions are met.
Most automatic forex systems are built on mechanical trading models. These models are tailored to function on the basis that all trade actions flagged will be executed in real time. Sophisticated as it is, this approach to trading has its disadvantages.
Disadvantages of Using Stocks/Forex Trading Robots
The unfortunate truth about the automated forex trading market is that since the industry is largely unregulated, the industry is riddled with many forex scams. Beginner traders need to be well informed when looking for forex auto trading systems as they may easily fall for scam replica systems touted as the best by some rouge marketers and brokers. Also, by its nature, the forex auto trading market extends the fraudulent trading activities to the gullible traders that are exposed through the use of the automated forex trading systems.
Regulatory bodies such as the National Futures Association and the U.S Securities and Exchange Commission have regularly warned traders to steer clear of fraudulent forex trading activities.
Metatrader is one of the most popular forex automated platforms. One of the reasons why this platform is popular is that the trading system enables the trader to set custom auto trading signal systems through easy and portable programming. The good part about Metatrader is that the custom programming availed to the trader can be ported to other installations of the trading system.
As I have mentioned earlier, forex robots do not replace the need to do your due diligence and get a good foundation on how forex works. Your knowledge on how forex works will empower you to identify the best forex auto trading system. Many expert traders limit the use of forex robots to some off-mainstream trading dealings as a way of diversifying their trading thrusts. Forex robots are useful and can indeed rake in a fortune for you but if you approach forex auto trading as a surefire way of profiteering 100 percent hands-off this industry will sure burn your fingers.
Take note that that no one can decide what the best automated trading system is for you. As a trader, your skills and needs are unique to you. Some traders prefer forex robots that come with trailing stops, stops imposing features and other market orders. While certain features such as real time monitoring are a must-have in any automated trading system, traders need to consider what they value the most in a trading software and then settle for a trading system that enables them to achieve their bottom-line. Before you settle for the best automated forex system trading, you need to watch out of trading commissions and some additional fees. It pays to explore all the options you have thoroughly before settling for anything.
The other benefit of using automated forex trading system is that this can handle trade 24 hours giving the trader an extended trading span remotely. What are some of the advantages or disadvantages of automated forex systems that you want to share with us? Feel free to use our feedback form below. We would also appreciate tips you may want to share with many of our readers that want to jump into automated forex trading.
Benefits of Stock Options Trading Leverage
Benefits of Stock Options Trading Leverage
There are many benefits of trading stock options. You may be wondering why you should trade options when you could focus of gaining from upward and downward market movements through buying and shorting shares. You also have an option of trading futures which come with greater leverage so why go into stock options trading. In this post we will share with you the benefits of stock options trading leverage.
What are the Benefits of Stock Options Trading Leverage?
Stock options offer a great deal of leverage. Stock options can be bought at a small fraction of the price of what is known as underlying stock, while standing for the same amount of shares. This enables a trader to have control on the profits on the same amount of shares working with a smaller risk capital. Put simply, with the amount you could use to buy shares you can control a comparatively bigger amount of stock in stock options trading. Leverage is defined as the power to control more shares with lesser capital.
Here is example of the benefits of stock options trading leverage. Let’s say you have $1000 to buy shares of company A, trading at $40. The same company has $40 strike price for its call options trading at $2.00. What the scenario means is that you can control 25 shares ($1000/$40=25) of company A by buying its stocks. Alternatively; you can control 500 of the company’s shares by buying 2 contracts of its call options ($1000/$2=500).
What you can gather from the foregoing is that as a trader, if you have the ability to control more shares with the same amount of money then you have far greater profitability in trading stock options as compared to trading stocks with the same amount of money.
Let’s say company A stock rallies in the range of $40 to $60, as a trader buying the shares would mean ($60-$40) X 25 which translates to a profit margin of $500, on the other end buying call options would mean ($60-$40) X 500 which translates to $10 000 profit.
The example shows the great deal of the benefits of stock options trading leverage.
Other benefits of stock options trading
Other than the lucrative merits of the stock options trading leverage that traders can enjoy, there are various benefits that come with stock options trading. Stock options come with protection. Buying stock options is more like buying insurance. As a trader you can always sell your stock at the strike price regardless of how low that stock price has fell. The strategy for doing this is known as protective put. Key to note here is that stock options started off as hedging instruments rather than speculative instruments. This is because stock options trading is an ideal way for traders to hedge away directional risk at any time they wish to. This, traders can achieve conveniently and with no margin implications.
One of the great advantages of trading stock options is flexibility. Stock options allow traders to shift from one market to another without much impact on current holdings. This can be done through the use of synthetic positions as well as synthetic Options Strategies. All these features enable traders to position themselves for profit even if the stocks they are holding fall.
Having outlined the benefits of stock options trading including the huge advantage of leverage, it is important to mention that stock options trading is not without risks. One of the major risk factors of stock options is that if the stock option expires out of money the stock options contract will exit worthless. This means that the trader can lose all the money invested into buying that stock options contract. This calls of traders to understand the concept of options moneyness.
The second major risk factor in stock options trading is what is known as time decay. Time decay is about buying a call options and the stock does not rally fast enough. When this happens the decay will diminish the value of the call options so much that the investment may not be profitable even if the stock went up.
Nevertheless, stock options trading is a gold mine of unlimited fortune for traders that are willing to understand how this kind of trading works. If you can understand the options moneyness concept and build a solid trade management strategy you are bound to reap huge benefits of stock options trading. For more information on benefits of stock options trading you can also explore this post on Advantages of stock options trading.
What is the best online stock trading software?
Brokerages present traders with the best online stock trading software which presents traders with unlimited possibilities.
If you have explored our forex trading guide you must have grasped some basic elements of forex trading. The rapid strides in information technology have seen the proliferation of forex brokerages who are offering a myriad of trading software all acclaimed as the best online stock trading software. Without plunging into any kind of listing and ranking the best approach in answering the question of what is the best online stock trading software out there is to explore important principles and guidelines of identifying a good and ideal stock trading software for a trader’s needs.
Some features to consider for the best online stock trading software
The first thumb rule when choosing the best online stock trading software is to look for the application that provides as much information as possible so as to enable you to make adequately informed financial decisions. Convenience is another major aspect here, the platform must enable you to buy and sell stocks anywhere anytime. It must give you the flexibility to trade from your cell phone or tablet. This is one major advantage of online stock trading applications. The platform must provide you with all the education material that you require such as streaming news, articles, real-time charts and investment calculators etc.
The platform must offer affordable services. This pertains to fees and commissions. Trading platforms usually come with trade fees, brokerage fees and option trades fees, etc. As a trader, you need to look at the affordability of these fees and also consider each platform’s minimum required balance as well as account maintenance fees.
Consider the range of investments offered. Having delivered the expected stock buying and selling, exchange-traded funds and mutual funds and services; a good online stock trading software should facilitate access to an assortment of international markets. This should also come with investment services or options for retirement and education saving.
Brokerage services are a critical aspect in online stock trading. For beginners, conducting online stock trading without reliable brokerage services can be a nightmare. The best online stock trading platforms have a coterie of useful paraphernalia comprising analysts’ reports, investment calculators, real-time charts and graphs, cell phone alerts etc.
Above all, the best online stock trading platform must be user friendly. No matter how powerfully loaded an application is, if users find it hard to use its features and do what they want to do the platform will remain a white elephant. The online stocks trading industry is growing exponentially and as a trader you need to know that you are not alone. Sign up with an online trading forum and get help from stock trading gurus out there. With the possibilities of after hours trading and all the IT innovation in this industry, the sky is the limit for hard working traders.