Webfolio Management: Understanding The Difference Between Forwards, Futures And Options Trading Strategies
by Scott Sanders
There has been a rapid rise in the individual investor. These are self-taught market investors who spend all day trading on different stock markets in an attempt to yield profits and increase the returns on their <a href="www.careerwebfolio.com/">webfolio</a> capital investments. The key to being a successful self-taught trader is ensuring that you familiarise yourself with all aspects of the market you are trading in. One of the most complicated market to trade on is the derivative market and it is important to understand the differences between each investment vehicle. This article will try and break down the significant differences between forwards, future contracts and option trading strategies.
The days of trading being used by people who studied finance or investments are over. Normal everyday people now have access to trading technology and software at their fingertips. This means that in today s climate anyone can become a trader. You just need to have some initial investment capital and you can trade in any investment vehicle you see fit. However, if you are planning on trading in the derivative market you may want to get yourself with some trading tactics. So, before you go and download all that trading software here are a few things you ought to know.
The first thing you need to know as a trader, whether a veteran or a newbie is how the market works, and more specifically how the derivatives market works. This means studying how each derivative works and how you can use each to achieve your desired profit outcome. This way you will know how to maximize your return and minimize your losses and how to hedge against risk where possible. This means learning the difference between a put option and a call option, or what an underlying asset is or what it means to take a long or short position, or what it means to be bullish or bearish or what a strike price is. This means getting a book or a website link and educating yourself on the basics. This way any strategies you learn will actually make sense.
The first strategy you need to know is linked to forwards, this strategy is will help you mitigate the risk of a currency position. Currency trading has become a massive phenomenon amongst traders at is one of the most volatile areas in the market. Using forward contracts, which are essentially agreements between two parties to buy or sell a particular asset, in this case currency at a specified date and a pre-specified price. This means if you speculate your asset to drop in price but still want to hold it for a little longer to see how it performs you can purchase a forward contract to ensure you don t lose more than its current value.
The first strategy is called the covered call, here you as the investor will purchase your underlying asset (there are a number of investment assets that you can buy), and at the same time sell a call option on the same asset. The thing to remember is that the quantity of assets you own should equate the quantity of the assets underlying the option. This is a great strategy to use when you hold a short position and are looking to make more profit or to hedge against a possible decline the value of your underlying asset.
These are the strategies you may want to execute during a bullish market condition: Covered Straddle, The Collar, Covered Calls, Naked Puts, Bull Calendar Spread, Call Back Spread, Bull Call Spread. These strategies will help you to exploit the upward moving trend of the market to protect yourself against risk while taking full advantage of the possible profits to be made.
There you have it, three different strategies you can use to increase market returns and hedge your investment against risk. If there were any terms that you couldn t quite understand then it may be best to keep on researching before delving into the derivatives market.
There are a number of other strategies you can employ using options, however for any of these to work you need to understand the mechanics of basic derivatives. The more knowledge you have as a trading investor on your investment vehicle the more successful you will be.
When you are looking for the facts about a <a href="http://www.careerwebfolio.com">Webfolio</a>, come to our web pages today. More details are available at http://www.careerwebfolio.com now.
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