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If you’ve been trading national currencies (Forex, for foreign exchange trading), you might consider expanding into trading options. While there are similarities between the two, there are also a lot of differences, so it’s crucial to understand the strategizing and methodology behind each type of trading. For day traders, options make more sense than Forex. Technically, Forex trading isn’t day trading at all.
You’re a day trader, and currencies rarely fluctuate much in the course of a day. Daily changes of more than 1 percent are a rarity, although world events can trigger higher change percentages. That means there’s not much volatility, so you make money trading Forex based on leverage. In fact, it makes no sense to trade Forex without high leverage, but that is also very risky. Forex isn’t really designed for day trading per se. You can day trade or hold the currencies for a longer period – sometimes months. If that’s your focus, you may as well simply trade stocks rather than wait for some major world event to affect national currencies.
With options, you’re not obligated to take action to buy or sell shares of a certain stock by a certain date, but you have the right to do so. It’s your option. That also means options are not limited to day trading, although you can certainly work with options with expiration dates within minutes or hours.
Option trading involves two types: Calls and puts. The call is a contract in which the buyer has the ability to purchase X numbers of securities at X price, known as the “strike price.” For stocks, every option equals 100 shares. A put is the opposite – the right to sell stock at a fixed strike price by a specific date. Option buyers take long positions, while the sellers take short positions. Call buyers plan to make money when underlying share prices rise. A put purchaser makes money when the underlying share prices fall. Sharp option traders can profit in up or down markets. The bottom line is whether or not the option is in or out of the money when its expiration date occurs. While an options value ceases upon expiration, for practical purposes traders almost never allow an option to expire.
Making the Decision
The decision to trade in Forex vs. options depends on various factors. Forex trading is much more technical than trading options, and there’s a lot more of a learning curve. You can learn and get started with options trading more quickly. You really do have more “options” with options trading, such as selecting price ranges. Trading options is just downright more interesting than Forex trading. Try “virtual trading” for a while until you get the feel of options trading and have better odds of profitability once you really trade.
If you’re already day trading with SureTrader, you’re familiar with our easy to navigate platform, and we offer research and data for options trading. SureTrader offers you constant access to licensed professional trading experts via phone, chat or email.