Top 3 Advantages of Options Trading

Discussion in 'Trading Systems and Strategies' started by danybrown, Feb 13, 2017.

  1. danybrown

    danybrown Trader

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    Forex options trading first started in the year 1973. But over the past few years, the popularity of options has developed to a great extent. According to a research, in 1999, the total volume of options contracts was 507 million. By the year 2007, the number had increased more than three billion. Although option trading is known for being risky investments that an efficient trader can only understand, options can be beneficial for individual traders or investors.

    Though options have been started more than 30 years ago, they are getting their deserved attention nowadays. Earlier, investors believed that options are sophisticated and they are difficult to understand, so they used to avoid trading options. In fact people misinterpret options as being too high in risk. This is not true. Below are discussed some of the benefits of trading forex options that can add value to your portfolio. (Information courtesy: Corner Trader).

    1. Cost-efficient:

    Options enable you to get great leverage. Therefore an investor can get an option position that is identical to a stock position, but by saving cost to a great extent. For instance, if you want to buy 100 shares of an $80 stock, you have to invest $8000. But if the investor buys one $20 call (one contract represents 100 shares), then s/he has to pay only $4000.

    2. Less Risky:

    In some situations, buying options can be riskier than owning equities, but there are also times when you can use options to reduce risk. Actually the risk factors depend on how you use them. As options need less financial commitment than equities, they can be less risky for the investors.

    Since options are the most dependable for of hedge, they are considered to be safer than stock. In terms of stocks, a stop-loss order is frequently placed in order to protect the position. The stop loss order is designed to stop losses below a predetermined price that has been prefixed by the investors. But the problem of these types of order lies in the nature of the order itself. It is operated automatically, so you cannot use it when you need it most. Unlike stop loss order, options are active 24/7. Therefore you can be assured of being able to use it when you need it. This is the reason that options are considered to be a dependable form of hedging.

    3. Higher potential returns:

    You don't require a calculator to calculate that if you invest less money and make a higher profit, you will get a higher percentage return. Option gives you that opportunity by offering you more profits at minimum investments.

    By reviewing the fundamental advantages of options, it has been proved why options are the centre of attractions nowadays. It can be said that it is the dawn of a new era for individual investors. Never get left behind.
     
    Last edited by a moderator: Feb 14, 2017

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