Options trading has been in existence for around 4 decades till date but it is only now it has gained attention. Back then, due to lack of understanding and calculation, many traders have had nightmarish experiences while trading options. Eventually, the word spread out and most of the traders avoided trading options on a notion that they were too risky and difficult to understand. The beliefs have finally changed now and traders are beginning to understand and embrace the benefits of options trading.
What is Options Trading?
An “Option” is a type of derivative security which can be bought/sold at a specified price & time. The buyer is free to buy and he is not obliged to buy at a specific price or date and hence the name “Options Trading”. Every form of trading has its advantages and options trading is no exception to this rule. Here are the 4 benefits of options trading you should definitely know.
1. Offers High Liquidity
Since options trading is practiced widely nowadays, no doubt there’s high liquidity. Liquidity is one important factor and an advantage that helps traders be on their feet. High liquidity means you have lots of opportunities to invest and make profits. Just make sure that your entry and exit points are calculated!
2. Bullish or Bearish – Both Can Be Good
It’s not like you have to earn profits by being bullish all the time. Remember that you are not a shareholder owning shares of a certain firm expecting the share prices to go up. If you are pretty confident that the market is about to take a downfall, go for the bearish attitude for a certain period of time until things change. The market offers you an opportunity at every fluctuation and it is up to you to manipulate it.
3. The Exposure to Risk Factor
With options trading, you gain complete control over the risk exposure once you get to understand how options work and create trading strategies with a limited risk of loss. You also get to enjoy the high probabilities of success when you trade options.
4. A Wide Range of Instruments
Options trading offers a wide range of instruments such as metals, energy products, agricultural products, foreign currencies etc.., enhancing your chances of broadening your portfolio. If you feel quite uncomfortable or unsure about how one particular commodity is going to work out, you can always help yourself with the next better one. You get to choose your lucky trading commodity.
There is no form of trading that’s absolutely perfect which could help you bag a series of wins. You always need to do some homework if you want things to work out your way. Options trading offers a lot of benefits and a little effort from your side could be rewarding for you as a trader! It’s time you should check it out for yourself. Better late than never!