“In this video we will talk about Options trading, why people trade Options, and what is options trading.”
You choose to trade Options for different reasons. You trade options to speculate on currency movements. You trade options if you have a spot trade that you want to hedge. You trade options if, like an importer or exporter, you aim to secure a future income.
The world’s financial markets are more exciting now than ever. You can trade options online just like forex, stocks and commodities. And the beauty of trading on the easy-forex platform is its simplicity. When you buy an option, you buy a future guarantee for a fixed price. A huge advantage of trading options is that you don’t get charged rolling fees for each day your deal is open. And, when the time comes, you choose whether to take it or not.
Opening an option deal is basically buying, or selling, a currency pair, at a set expiry point in the future. And once you buy the option, you’ve bought the right to cash it in at any time up to the expiration date.
Let’s see how options work in this example:
John has a small jewelry workshop. He buys gold to make jewelry and sell it. John buys 100 ounces of gold from his supplier every three months. He is aware that gold prices may change, and he wants to get fixed prices for his future purchases. To do so, he signs a contract with his supplier, Mike. Mike sells gold to John at a fixed price for a small fee, the premium.
On the delivery day John has 2 alternatives :
John can either buy the gold from his supplier or buy it directly from the market. If the market price is lower than what they had agreed, then John can cancel his contract with Mike and buy from the market. So Mike only receives his premium. If the market is higher than what they agreed, John will buy from his supplier, Mike, at the pre-agreed price which is lower than the current market price.
Now let’s see an example on how you can trade options on the easy-forex platform:
John trades gold online with easy-forex. Gold options allow him to minimize his risk by guaranteeing a fixed price at the future date he chooses. If John believes gold prices are going to rise he will chose to buy an option on Gold.
• He selects the price at which he believes that gold will rise above.
• The date up at which he wants the option to last.
• And the amount of gold he wants to buy.
Buying a gold option means that John will pay a small premium. If gold rises above the price level he sets, John can close his position. Meaning, that he will sell the option and profit from the difference. If the gold price moves below his selected level, he will only lose the small premium he paid up front. Dave invested in gold knowing his maximum cost upfront.
You only need a small upfront investment to trade options.