What Are the Major Benefits of Options Trading?
When it comes to modern financial trading, there are huge numbers of different instruments to choose from, which can make establishing a strategy fairly difficult. However, there are some that are quite clearly more popular than others, and options are one of the most successful.
It’s highly likely that if you’re not new to the world of investment and financial trading, you know exactly what options are, how they work, and what their benefits are, but for those newer to the markets, it’s important information to know.
Here we’re going to have a look at the three major benefits of options trading as far as traders are concerned.
Leverage
This is a huge attraction for a lot of people, and any instrument that can benefit from it is usually a popular one. It can be complicated, especially when it comes to options, but the long and short of it is that leverage means that you can invest a smaller amount, but actually control a much larger position.
This has the effect of allowing you to amplify your profits when things go the right way. Of course, the reverse can also be true. Leverage is not generally used to win more than you could with the money you’ve got; it’s about making sure that you don’t have too much tied up at any given time, so it’s very popular indeed.
Flexibility
Everyone like flexibility in the markets, because it allows changes to be made while positions are open, and hedging against losses. Options are very flexible indeed, and can be used in conjunction with a great many other financial instruments for these purposes.
This is one of the reasons that they’re such a common staple in traders’ portfolios. There is of course the potential to use two or more options in a complimentary fashion. If you’re going to be using a broker like Sucden Financial, they can usually help you structure your positions in such a way.
Defined Risk for Buyer
Options are different to some investments in that the risk of the trade is fully known beforehand, and there are clear boundaries. With some instruments, you could potentially lose limitless value as market forces move against you. With an option however, the buyer can’t lose more than the premium.
Be aware of course that selling uncovered options can mean a seller is exposed to theoretically unlimited losses.
Options Trading
There you have it. If you’re new to financial trading, whether you’re interested in forex, commodities or something else, options should definitely be one of the first instruments that you consider as part of your portfolio. They can be flexible, offer predictable risk, and are good candidates for leverage.
Category: Options Trading
