Option Trading: How To Achieve Superior Returns As A Trader

By Dr. Asoka Selvarajah

What is option trading?

You can enter the stock market with a minimum of investment and still get a bigger return on your investment if you go in for option trading. In option trading you pay a premium to give you the right to buy or sell some shares in the future. You can then buy or sell those shares within the time specified at the price decided. You are obliged to make the purchase or sale within the specified time or risk the forfeiture of the premium paid.

In option trading with stock for example, an option gives you the right to purchase or sell a fixed number of shares, determined by the option contract specification, within a specified time period and at a specified price. Hence, as an option buyer, you either execute that trade within the specified time period or forfeit the premium you paid, or else you sell the option itself for either a profit or loss depending on what has happened in the intervening period. Option trading expirations for a given option series are generally spaced one month apart, and the termination date is generally the third Saturday of the month or any other day decided by the Stock Exchanges. Once that date has expired, all rights of the trader cease and he cannot use the option to buy or sell that particular underlying stock.

Concepts

Stock trading and option trading are quite dissimilar. Understand the ideas and the terms behind option trading if you choose that as the way to trade in the stock market. The words used are quite specific and may sound like Greek and Latin to the newcomer. As on option trader, you would have the right to buy or sell a particular stock in the volume agreed on at a fixed price, as long as you execute the trade within the time that has been specified.

The option trader who buys options has no obligation to act whatsoever, and is only obligated to pay the premium to buy the option in the first place. He retains the right to exercise his options in the future, should the opportunity arise and should he wish to do so. The option "exercise price" locks in the specified price at which the underlying stock can be bought or sold for the lifetime of the option. If you are the owner of a call option, giving you the right to buy stock at the exercise price, and the stock price rises above the exercise price during the lifetime of your call option, you can exercise your option to acquire the stock at that exercise price instead of the prevailing price in the market, which may be far higher. In other words, you are buying stock cheaper than the market value.

The stock price may drop or just remain lower the exercise price, the buyer of call option cannot use at all, but can also sell the option and in that way exit the position at a loss or breakeven. Instead, he can hold onto it with the hope that there will be rise in the option of the market value, by depending upon factors such as volatility, expiry time and much more.

Usually, the options of leverage can control a bulk amount of the original stock for relatively small capital expenditure compared with buying or selling the underlying tool. This makes options more attractive because there exists higher profits on investment than just trading the original instrument. There are also far more trading opportunities with lower risks that can be known only when you know what you are doing?

Terms in usage

Option trading for stocks is generally in blocks of 100 shares

Call option: The option giving the right to buy the underlying instrument at the strike price.

The option giving the right to sell the underlying instrument at the strike price is called the "put" option.

The price set in the option trading contract at which the underlying may be bought or sold is called the "strike price".

In the money: When the strike price is below the existing price of the stock and you exercise a call option, and when the strike price is above the existing price of the stock and you exercise a put option.

You are considered to be "out of the money" if your strike price is more than the existing price at the time of the option and you put in a call option, or you put in a put option and the strike price is lower than the existing price. - 23218

About the Author:

Discover FREE expert Trading videos, podcasts and articles packed with secret strategies to super-charge your Trading and rocket your profits. Dr. Asoka Selvarajah also offers you his critical FREE report, The 7 Deadly Mistakes Of Online Trading. Visit His Online Trading Site OnlineTradingRebel.Com Right Now!

Stress Free Forex Trading with Forex VPS

By James Smith

When you get online either for forex VPS purposes or research on information you are logging into a server. There is one server that everyone taps into and one operating system. When many people are using one server sometimes things slow down or other times it's hard to open a page. VPS which is a virtual private server as the name states is server being used by only one person. Imagine using a server alone in the whole world. The main server will be divided into several servers and distributed and used as forex VPS.

With the dedicated server you will have your own software's and operating system. This virtual server is like a branch of the bigger universal server but still operates individually. This server is usually used by forex traders and is referred to as forex VPS, ie hosting for your forex trading requirements. The dditional beneift of using a VPS is that your MetaTrader EAs will run 24/7, even while you are sleeping. This means that you do not need to have your computer switched on for your trades to be placed.

One of the biggest advantages of a forex hosting service is that on the dedicated server, you will have your own software's and operating system. This virtual server is like a branch of the bigger universal server but still operates individually. This server is usually used by forex traders, hosting your forex trading requirements. The additional beneift of using a forex VPS is that your MetaTrader EAs will run 24/7, even while you are sleeping. This means that you do not need to have your computer switched on for your trades to be placed, and you do not need to worry about power outages, or losing your internet connection.

If you are a trader and like to trade on a regular basis, subscribing to forex VPS services will let you trade without having the computer on the rest of the day. You can trade through a metatrader broker by simply logging into the site; you will view it and manage the account then start trading immediately.

For those traders who run their expert advisers without interruptions, forex VPS is the ideal service for you. It is always on-line, and does not reboot when trading. Power outages do not affect it and the best part is that the computer can be off. With all its benefits, you can also use this kind of server to test WebPages right before you make them available to the public. It lets you test applications and different software's without having to reboot the whole server.

The automatic restart feature is a vital specification, incase the server is rebooted and you need to automatically restart. The 24/7 access feature is needed because you should be able to access your forex VPS at any time, and from anywhere in the world.

In terms of selecting your forex hosting company, there are a large number of providers who offer this service, as it is becoming so popular with forex traders. Some of the leading forex VPS providers are; EzforexHost, MetaTrader Hosting and Forex Hoster.

Of the above forex VPS companies I have listed all of them have different features. The features that you should look out for should include a pre-installed MetaTrader preferably the new version which is MetaTrader 4. Make sure the hosting service is compatible with all brokers; this will allow you to download and install trading platforms from brokers to your VPS. - 23218

About the Author:

For more information about forex trading, forex hosting and Forex VPS go to Forex Village. They offer independent reviews and have considerable experience when dealing with forex hosting and MetaTrader Expert Advisors.

How to Choose a Profitable Automated Forex System

By James Smith

Automated forex system is widely used by many professional currency traders. Currency trading has been gaining popularity as an alternative method of making profitable investments after the equities markets have crashed over the past 18 months or so. The continued and rapid development of the concept of theautomated forex system has made currency dealing much easier, and made it possible for many people to participate in the business, who previously would have been excluded through lack of expertise or knowledge.

The beauty of automated forex system is that it transacts on your behalf. It is programmed to go on 24 hours everyday without supervision. The benefits of close monitoring of the trade make it possible for you to maximize on profit. The system has been programmed to minimize losses while trading in currency, thus minimizing your chances of suffering loses.

An automated forex system which has been well designed is able to carry on transactions independently of the dealer, and tie in the trade recommendations with the trading acount - the use of human control or monitoring is not needed at all. Business owners who do not have time to monitor their screens all day who have used such a system need comfort that the software is robust and not subject to viruses, and all good systems will have been checked and tested thoroughly before going to market.

The automated forex system is programmed to work efficiently by following specific trading conditions set out in the particular software program. As the system is known to work around the clock, you make use of every available opportunity to make more money. The system is designed to maximise gains thus helping to create higher profits. It is possible to trade on multiple systems at the same time using automated systems.

It is also possible to programme the automated forex system to perform in a manner to suit your currency dealing requirements. You can tailor the system around your trading habits so that it functions in accordance to your needs. This can be altered from time to time so that the system serves you better. These modifications can be made so as to maximise any opportunities in the market at any given time.

There has been a significant increase in the number of people venturing into forex trading. This led to the automation of forex, as nowadays transactions go on 24 hours a day. Automated forex systems have been instrumental in easing up trade which has contributed to the popularity and success of the business.

By using automated forex system, you are able to transact in the world market as soon as orders and sales are generated. Transactions occur almost instantaneously; this is a prerequisite in business dealings. It is advisable to keep a close eye on the business and market conditions even with the system in place. Functions that you should handle to ensure maximum gain in profit margins are determining the currency and its application. Get the value before trading as this determines the value of the final transaction.

Automated forex systems make it easy for people in full time work to embark upon forex trading and carry on with currency trading even with not much little knowledge of how the market operates. The system makes it possible to manage trading accounts as this can be done using the program. There is of course a requirement to learn how to follow market conditions and capitalize on changes in trends, as this can make it possible to make even larger profits, and to trade multiple markets and currency pairs simultaneously. - 23218

About the Author:

For more information in relation to foreign currency trading and how to select an automated forex system go to Auto Forex Systems, a reputable online forex system review resource. They have many years of experience of dealing with the analysis, development and testing of various forex trading systems and services.

Trading Strategy: Pyramid Your Profits!

By Jordan Weir

We've all heard the age old adage, cut your losses short, and let your profits ride. Yet the vast majority of traders don't use this concept to its fullest. The proper application of this single, key piece of advice can be the difference between showing a profit at the end of the month, and showing a loss. This method is known as pyramiding your profits.

Risk management is one of the most crucial elements of your trading system. Badly managed risk will lead to eventual losses, while well managed risk will lead to profits. A basic principle of speculation is that no more then 5% of your portfolio should be at risk during any trade. On a $50000 portfolio, thats $2500 at risk. This does not mean that you cant invest more then $2500 into a given trade, but it does mean that when setting a stop loss, you need to decide on position sizing accordingly.

To determine your position size, what you do is you take the amount your willing to risk, and divide that by the amount your risking per share (the difference between the stock price, and your stop loss). So on a $20 stock, if your stop loss is at 17.50, and your risking $2500, then you do $2500/2.50 = 1000 shares. Your position size should be 1000 shares.

With your standard trade, that would be hit. An order to sell at a certain price, and order to buy at a certain price, and a stop loss. When your pyramiding your profits though, there's an integral extra step. When the stock has gone up in price, and you have some profits, you add MORE to the position. Lets say it goes up to $22.50, and you decide to move your stop loss up to $21.00. You now have 1000 in gains if you get stopped out. To pyramid your profits, you add that 1000 in gains to your risk amount for the trade, for a total of $3500. Since its now at 22.50, and we can risk up to $3500, then we should purchase another 2300 shares. (3500/1.5 = 2334).

Now lets analyze your position for a second. You bought 1000 shares at 20, and 2300 at 22.50. If it goes to 25, then you made $5000 on the original 1000 shares, and another $5750 on the second set of 2300 shares. If it goes down to your stop at 21, then you made $1000 on the original 1000 shares, and lost $3450 on the second set of $2300 shares, for an overall loss of $2450 (about the same as the risk you were willing to take on). The same idea can be applied to shorting stock as well. Just remember " add to your position as you become profitable, but keep your maximum loss relatively constant factoring in the unrealized gains.

Yet the applications of this strategy are important not just for the short term trader; it can be used by long term investors as well. Assuming its an up trending stock, long term investors would be well served to start with smaller positions, with a stoploss, and essentially add to the position on breakouts. This allows you to profit from the frequent megatrends in the market, while being taken out of the market if it begins going against you.

You may have heard the saying, you never go broke taking a profit. This idea is the polar opposite to pyramiding your profits, and is in fact, dangerous. To succeed in the investing world, your profits must be substantially higher then your losses, and that is whats accomplished by a trading strategy such as pyramiding your profits. Cut your losses short, and let your profits run.

The most successful traders in the market aren't the ones who are right on 80% of their trades. Many of the most successful aren't right on 50% of their trades. A few of them aren't even breaking 30 or 40%. What separates the best from the rest isnt how often their right, but how much they make when they're right compared to how much they lose when they're wrong. By pyramiding your profits, you'll make massive gains, and small losses, which is a key to becoming a successful trader. - 23218

About the Author:

Don't even THINK about trading another stock before visiting Jordan's website on Stock Trading Stategies. Learn about Stock Option Stategies, etfs, shorting and more by visiting the Stock and Options Guru!

Know Your Forex Broker

By Hass67

If you are serious about starting forex trading than you should know the games youre your forex broker can play with you. Most of the small forex traders dont know these facts and are easily taken for a ride by unscrupulous forex brokers.

Retail forex market is new and different from forex interbank market. Forex interbank market is only open to big players like banks, corporations, hedge funds, pension funds and other institutional investors and deals with large currency transactions.

Retail forex market was developed after the advent of the internet. Retail forex brokers offer online margin accounts to retail forex traders like you and me who are small time players in a huge market. Retail forex market is loosely regulated that lets the forex brokers play games with small forex traders.

You need to know the games; a forex broker can play with you. If you dont know what games a forex broker can play with you, you will never succeed at forex trading. Understand how the broker can trick you:

Pricing is Not Transparent: Being an OTC (Over the Counter) market, forex broker can quote prices that may not be fair but you have accept them or choose another broker. The prices that your forex broker is going to quote to you, is the price that you will get. You cannot do anything about it.

Leverage: Forex brokers let you trade forex with a high leverage like 100-1 or 200-1. Rather they will encourage you to use more leverage. Using leverage allows you to make high gains with a small price movement but it destroys you when you are on the wrong side of the market. Since most of the forex traders dont know how to trade. Giving you high leverage lets your broker gain when you lose.

Brokers try to trade against you: Forex brokers act as an intermediary between the retail trader and the interbank forex market. Since most of the retail trades are too small in size and cannot be immediately offset in the interbank market, forex brokers get the opportunity to trade against you. If you go long, the broker will go short and if you go short, the broker will take the long position. As most of the retail traders are not good traders and lose most of the time, forex brokers make profit from this.

Practices that are unfair: Forex brokers and Casinos have the same mentality: they dont like winner. If you are winning too much, the house will be stacked against you. Your forex broker may make the execution of your trades very difficult or start denying the service to you. Your trade may not execute due to slippage. There are many games the broker will play against you so beware.

Visit my Blog for finding a Forex Broker Scorecard that can help you in choosing a right broker. You also need to know what type of questions you should ask. - 23218

About the Author:

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in Options and Forex Trading. Read more about Forex Broker Scorecard.