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Advantages and Disadvantages of Options Trading Over Trading Shares

Advantages and Disadvantages of Options Trading Over Trading Shares

We’ve been trading stocks and options for a number of years and since 2006 trading Forex exclusively, it’s been an exciting adventure. We know what it is like to be a newbie in the trading world. You’ll get to hear The Good, The Bad and The Ugly. Nothing will be held back and no stone left unturned. There is a section on Trading Psychology and why mastering this aspect is one of the most important aspects of being a trader.

The work involved in trading involves educating yourself on how to trade a workable strategy, keeping your emotions in check, not getting too excited when you win and taking it on the chin when you have your inevitable losing trades. If you don’t trade consistently to a plan or strategy, you’re not a trader but a gambler.

Advantages of Options over Trading Shares

o Can make money in a static or declining market

o Can trade with higher amounts of leverage (i.e. you don’t need so much capital to get started.

o Can use more complicated and sophisticated strategies to protect your money and make more money.

o Can be used as an ‘insurance policy’ to hedge a position

Disadvantages of Options

o Not good for long term trading (buy and hold)

o Have to learn to pick shares and then also learn the option trading strategies

o Shares can move in the direction you predicted but you may still not make any money

o Have a limited life (the option expires at a fixed point in time)

o For you to make money someone has to loose the same amount you have made ( although some people may like this aspect of options)

As a trader it’s important to have some knowledge of how options work, however we would caution against trading options if you are just beginning your trading career. As mentioned before we only trade Forex and there are compelling reasons for this which we will discuss.

Source by M K Chin

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