How Options Trading Works
Options trading is one of the many ways that traders can make money online. It is offered by many companies either as a standalone service or part of other products.
The history of options trading can be traced to hundreds of years ago when commerce and industrial revolution was taking over. In those days, producers and companies would make a deal that would provide them an assurance of supply and demand. For example, consider a corn farmer and a corn miller. At the beginning of the planting season, the miller would talk to the farmer about supplying he corn at a specific date at a specific price. This would give the miller an assurance that his milling company will continue operating. On the other hand, the farmer would be assured that his produce will be bought.
When the period of the agreement arrives, the farmer will supply the corn to the miller and the miller will pay at the agreed price. For the farmer, it will make sense especially if the market prices of the corn is lower than the agreed price. For the miller, it makes sense if the price of the corn is higher than the agreed price.
The same concept is now used when it comes to trading options online. Financial services have created options services where you can place your trades on all types of assets like currencies, commodities, indices, and commodities.
To become an expert online options trader, you need to do a few things. First, you need to identify the asset you want to trade in. There are hundreds of such assets and so, I recommend that you select an asset that you have a good understanding about. If you have never traded cocoa futures, you should not do it. This is because you don’t understand clearly the dynamics of the cocoa trading industry.
Then, you should study the asset. For example, if you want to trade the GBP/USD pair, you should learn the basics of the pair. For example, you should look at the ongoing news and the upcoming data that could affect the price. After doing this fundamental analysis, you should use technical indicators which will give you a better idea about the price movements. First, you should use the trend indicators, which will tell you whether there is a trend. Then, you should use the oscillators, which will help you know whether the asset is oversold or overbought. Next, you should use charting tools like Fibonacci Retracement to know the points the asset could go.
After doing this analysis, you have two options. First, you can predict whether the price will move up or down. Second, after predicting this, you should select the timeframe of the trade. This is also known as the expiry period. easyMarkets options expire within one, three, or six hours. You should select the timeframe that suits your analysis. Further, you can exit your trade if you believe that it is not working.
In options trading, if your trade goes right, you receive a payout from the broker. If the options fail, your investment is lost. Therefore, it is important for you to limit the size of the trades. Ideally, your options size should be less than 5% of your total capital.
Author: Boris Dzhingarov
Boris Dzhingarov graduated UNWE with major marketing. He writes for several sites online such as Semrush.com, Socialnomics.net, Chamberofcommerce.com. Boris is the founder of MonetaryLibrary and Cryptoext. You can connect with him at Twitter, Linkedin.