Options are a very versatile form of trading, and they can be implemented in various trading plans. Their advantage lies in the ability to become part of both long-term and short-term trading strategies. We could discern options and binary options, and we could talk about them as two different types of trading, but that would be wrong. We will discuss options as a whole, so take in the account that we talk about binary options as well. And do note that we won’t talk about assisting software like binary option robot in this article as we will focus on the options and what they are.
Options market and how to trade on it
Options are similar to stocks if we are talking about the way an investor can take a position on the market and make a profit. The main difference between these two types of exchanges is the amount of choices a trader has. Another difference is the controlled risk of a loss, or to be more precise the control of the sum of the money a trader might lose.
Many traders turn toward options because they can have the full control over their investments. Investing in stocks is risky, and the possibility of a loss doesn’t determine the size of the loss. A stock trader who invests in bad stocks may end up with assets whose value stays flat for years.
Every options trade has an expiry time upon which the position closes. This means that a trader knows whether they made money or lost it and there isn’t any confusion or waiting. Another advantage of the options is that the trader has full knowledge about the amount they could make and the amount they could lose. The same goes with the use of the leverage. If a trader uses leverage on a trade, they can calculate the possible profit, as well as the possible amount they would lose if they trade unfavorably.
The dark side of the options
Don’t think that options are a perfect form of trading as such thing doesn’t exist. In reality, this exchange type should work as a place where traders trade against each other. In fact, the brokers take one side and the traders have to trade against them. This isn’t something that is spread throughout the whole market, but the majority of the brokers will take part in the deal. The main reason behind this is the profit.
Every option costs a certain amount of money, and the base for buying them is 100 dollars. So, when a buyer invests 100 dollars, they get a chance to earn a percentage of the money they invested (between 1 and 99 dollars) that depends on the trade. The percentage of the win should be determined by the number of people that buy the different option. In reality, that isn’t the case as brokers decide the percentage for every option. The reality is that options always give a better chance to the broker as they win the whole of 100 dollars from a trader, while they lose only a portion of that.Read More