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OPTIONS TRADING MISTAKES YOU CAN AVOID
Option traders of every level tend to make the same mistakes over and over again. And the sad part is, most of these mistakes could have been easily avoided.
Control your emotions
Its easy to get down on a trade and sell at the exact worst moment – right before a stock turns up or down in favour of your position. Define your exit plan even before you purchase the option. This will take the emotion out of play and will keep you in the trade while limiting your downside in case the trade goes against you.
2. Keep time factor in mind
Options are a decaying asset. And that rate of decay accelerates as your expiration date approaches. So if you’re long a call or put and the move you predicted doesn’t happen within the time period expected, get out and move on to the next trade.
What if you get out too early and leave some upside on the table?
This is the classic trader’s worry, and it’s often used as a rationale for not sticking with an original plan. Here’s the best counterargument we can think of: What if you profit more consistently, reduce your incidence of losses, and sleep better at night?
Do not ‘double up’
“Doubling up” on an options strategy almost never works. Options are derivatives, which means their prices don’t move the same way or even have the same properties as the underlying stock.
Although doubling up can lower your per-contract cost basis for the entire position, it usually just compounds your risk. So when a trade goes south and you’re contemplating the previously unthinkable, just step back and ask yourself: “If I didn’t already have a position in place, is this a trade I would make?” If the answer is no, then don’t do it.
Close the trade, cut your losses, and find a different opportunity that makes sense now.
Trading foreign exchange on the currency market, also called trading forex, can be a great hobby and a great source of investment income. To put it into perspective, the securities market trades about over Rs 1,00,000 crores per day; the forex market trades above Rs 30,00,000 crores per day. You can make a lot of money without putting too much into your original investment, and predicting the direction of the market can be a real rush. You can trade forex online in multiple ways.
Terminology
The type of currency you are selling, is the base currency.The currency that you are purchasing is called quote currency. In forex trading, you sell one type of currency to purchase another type.
The exchange rate tells you how much you have to spend in quote currency to purchase base currency. For example, if you want to purchase some U.S. dollars using British pounds, you may see an exchange rate that looks like this: GBP/USD=1.589. This rate means that you’ll spend 1.589 dollars for 1 British pound.
A long position means that you want to buy the base currency and sell the quote currency. In our example above, you would want to sell U.S. dollars to purchase British pounds.
A short position means that you want to buy quote currency and sell base currency. In other words, you would spend sell British pounds and purchase U.S. dollars.
The bid price is the price at which your broker is willing to buy base currency in exchange for quote currency. The bid is the best price at which you are willing to sell your quote currency on the market.
The ask price, or the offer price, is the price at which your broker will sell base currency in exchange for quote currency. The ask price is the best available price at which you are willing to buy from the market.
A spread is the difference between the bid price and the ask price
Decide which currency you want to buy and sell based on fundamental, technical and sentiment analysis.
Make predictions about the economy. If you believe that the Indian economy will continue to strengthen, which is good for the Indian Rupee, then you probably want to sell dollars in exchange for the Rupee where the economy is strong.
Look at a country’s trading position. If a country has many goods that are in demand, then the country will likely export many goods to make money. This trading advantage will boost the country’s economy, thus boosting the value of its currency.
Consider politics. If a country is having an election, then the country’s currency will appreciate if the winner of the election has a fiscally responsible agenda. Also, if the government of a country loosens regulations for economic growth, the currency is likely to increase in value.
Read economic reports. Reports on a country’s GDP, for instance, or reports about other economic factors like employment and inflation, will have an effect on the value of the country’s currency
Learn to calculate profits
Trade using brokerage account
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Forex is Not a Casino: Forex trading must be taken very seriously. Do not think about it as you would think of a casino, this is not recreation, this is your career.
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WHAT IS A DAY ORDER?
A day order means that the futures order will only last for the duration of the days trading session. The order will expire and be cancelled at the close of trading for that day if it is not filled. By default, all orders are considered to be day orders unless you specify it as an open order.
An open order is the common term for an order that remains active until it is filled, cancelled or the contract expires. It is usually designated as a Good Till Cancelled or GTC order on most online trading platforms or the order tickets that a broker fills out.
Make sure to keep track of your open orders. Traders sometimes forget about them and get a nasty surprise down the road when an open order is filled. Stop orders are probably the most common open orders that traders forget about. It is a good idea to get into the habit of checking your open orders regularly.
5 TIPS TO GET YOU STARTED IN SHARE TRADING
You own a part of the business
When you invest in stocks, you do not invest in the market. You invest in the equity shares of a company. That makes a part owner of that business without having to go to work there. The good news is, this entitled you to a share in its profits.
The bad news is that you are also expected to bear the losses, if any.
That is why investing in shares is risky. If the company does well, you benefit. If it does not, you lose. There are no guarantees whatsoever.
2. Don’t rely solely on ‘good advice’
A smart investor should never invest buy shares of companies he doesn’t know much about. Relying on ‘advice’ from friends is not always a great idea. Do some groundwork yourself. It doesn’t matter who is buying the stock or who is recommending it. Steer clear of such ways of making a fast buck. These tips will land you in a soup.
3. Decide how much you want to invest
Always remember one basic rule in finance — if something gives you higher returns, that’s usually because it carries a greater risk. That’s the reason why not-so-good companies will pay you a higher rate of interest for your deposits.
The same reasoning goes for stocks too — they give higher returns than, say, bank fixed deposits because they are more risky. So the amount of money you invest in the market depends on your capacity to bear the risk.
4. In the short-run, the price of the share can fluctuate wildly
The prices will get influenced by the market sentiment and the general direction of the market. As a result, you may see short-term slumps. This is not just a hypothetical but a very real possibility
5. Always invest for the long-term
The best way to make money is to buy low and sell high. This means you should buy the share when the price is low and sell it when it is high. That is why you must buy in a bear market. The best time to sell is in a bull market, when the sentiment is high and the prices of shares are rising.
But it is very difficult to time the market. In fact, no one can do it. If we could, we would all be millionaires, wouldn’t we? That is why, when you invest in the market, it is best to invest for the long-term. Hold on to your shares for a few years before you think of selling them.
FOR SUPPORT IN EQUITY, COMMODITIES AND CURRENCY TRADING ASK FOR MEMBERSIP IN YOUR AREAS OF INTEREST. INVEST FROM RS 50K TO RS.100LAKS BASED ON RISK APPETITE SUBJECT TO SHARING CONCEPT BASIS. FORE MORE DETAILS CONTACT US. GOOD LUCK
