Tuesday, May 8, 2018

Webfolio Management: Understanding The Difference Between Forwards, Futures And Options Trading Strategies

By Scott Sanders


There has been a rapid rise in the individual investor. These are self-taught market investors who spend all day trading on different stock markets in an attempt to yield profits and increase the returns on their webfolio capital investments. The key to being a successful self-taught trader is ensuring that you familiarise yourself with all aspects of the market you are trading in. One of the most complicated market to trade on is the derivative market and it is important to understand the differences between each investment vehicle. This article will try and break down the significant differences between forwards, future contracts and option trading strategies.

The first step to conquering the derivative market is to understand the strategies associated with each spate investment vehicle and also know how they relate to each other. It would also be to your benefit to tick off the basic understanding of each vehicle. This will require you to understand the lingo, the jargon. It may sound silly, but understanding the concepts is a step closer to understanding the strategies you will have to employ later in your trading activities.

When the option market is in a bullish position it means that prices are on an upward incline and that things are looking positive. This is also caused by positive announcements from various companies that signal growth to investors, as such more people are investing in the global market. When it stays in a neutral position it means that it is neither quite bearish nor quite bullish, there are upward and downward movements occurring. The truth is markets are never completely bullish or bearish, but display a mixture of both to some degree. What tells you which is the more prominent are the various trends in different areas of the market.

The second thing you will need to do is acquaint yourself with some useful investment strategies. Believe it or not there are only a handful of tactics you can use to manipulate your option to get the result you wish. These are some of the strategies that you may want to study and apply in your trading journey.

The second strategy that you may want to know is linked to futures, and is called a spread trade. Spread trading helps investors combine the use of long and short positions simultaneously. This helps you to benefit from the price difference between the two contract you purchase while hedging against the price risk of holding one over the other. By holding both contracts in both positions you are safe when the market favours the other while making a profit on the other position.

These are the strategies you may want to execute during a bullish market condition: Covered Straddle, The Collar, Covered Calls, Naked Puts, Bull Calendar Spread, Call Back Spread, Bull Call Spread. These strategies will help you to exploit the upward moving trend of the market to protect yourself against risk while taking full advantage of the possible profits to be made.

There you have it, three different strategies you can use to increase market returns and hedge your investment against risk. If there were any terms that you couldn t quite understand then it may be best to keep on researching before delving into the derivatives market.

Investment truly is great thing to get involved in, it is a way to control your profits and your returns without leaving it to the hands of a broker or another trader. The control is in your hands, you just have to be knowledgeable enough to be in the driver s seat.




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