Most people understand the basics of the stock market. They know that buyers and sellers agree to buy and sell, or trade, stocks. Options trading, though, is likely to be much more of a mystery to those same people. Well, trading options is really not that different. As a matter of fact, smart stock traders will engage in options trading as a way to buy insurance on their stock trades, or, to put it another way, to manage the risk inherent in their stock transactions.

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Leverage

Options are contracts that can be traded just like stocks. The reason you should trade options is because of the powerful leverage they offer. To fully understand the leverage we can look at an imaginary stock called XXX

This stock might be trading at a value of $40.00. To buy 100 of XXX it would cost a total of $4000, plus brokerage costs. If the stocks go up $5.00 then we have a profit of $500. So then we look at what options can do

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Currency options trading offers traders a great advantage I times of high volatility which is the staying power – so long as your option comes in the money, before expiry you make money regardless of where prices spike in the interim…

The problem most traders have is not spotting market direction, its getting their market timing right with their trading signal so they don’t get stopped out. They know which way prices are going to go, get stopped out and then see the trend go right back in the direction they thought, pile up thousands in profits and their not in the trade!

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As an investment professional who has extensive experience dealing with stock options, I am often approached by friends and family members who want to learn more about options trading. After all, the prospect of making quick money is alluring. Although many of my colleagues are institutional traders who have made an obscene amount of money for their trading desks either selling or buying options, I kept on refusing to teach my enthusiastic cousin in college the fundamentals of options trading.

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