How to trade on options: the main advantages and risks

Options trading at the exchange market is becoming more and more popular. Although many beginners and experienced traders choose options as their main trading instrument, there are those who are still afraid of doing it. In this article we will discuss how to trade Options with minimum risk and what are the main advantages. 

How to trade on options – advantages of the tool 

The first thing that can be attributed to the advantages of options – it is a constant fixed income. Traders who prefer the stability will definitely appreciate this feature of options. A fixed income is obtained when you sell, because by selling an option, the trader is guaranteed to receive a premium. The second advantage of the options is that they can be used for insuring your investments. Thus, trading options gives the opportunity to get unlimited profit with minimal risks. 

The third advantage of this trading tool is that option can be used as a derivative instrument. You can use different combined strategies, and you do not need to make extremely accurate forecasts about the underlying asset. With a proper approach and a good combined strategy a trader can make a profit when the market is rising, but even when it is stagnating or even falling. In the case of the addressed transactions options allow the use of clearing. In addition, trading this asset does not require a large deposit, unlike the stock market. Also, options allow you to achieve the maximum “leverage effect”. 

Options: strategies and their risks 

The basic strategy – selling Call options with coverage. Call options give their buyers the right to purchase the underlying asset at a predetermined price at the end of the period specified in the option contract. When selling Call options, the trader sells his rights to the underlying asset, which he owns. Thus, it is possible to obtain additional income, for example, on stocks that are already in the investment portfolio of the trader. This strategy is also good for selling stocks that are no longer needed by the trader. Thus, he receives additional income and gets rid of unnecessary ballast. This strategy is considered to be optimal to start working with options. It is quite safe and simple. 

If you want to get to know options and other foreign exchange market instruments in details, you have to find a reliable broker first. You can do that here