• What Does Trading Futures Mean?

Imagine the futures market to be a huge store with big bins of virtually every single thing that is produced or serviced and in any way used in commerce. As you shop around you’ll find some of your favorite things, things that you are familiar with; things that you recognize as necessary to sustain life as we know it. You can actual trade the value of any of those things in the futures market. It’s not for the faint of heart, but it is indeed exciting.

Trading Futures Offers Massive Leverage In a Controlled Environment

There is a good tutorial on the fundamental of trading futures here

• Contracts

Trading futures are bought and sold in “contracts.” If you believe that corn is going to go up in value because you heard about some bad weather that wiped out half the nation’s corn crop, trading corn futures may be of interest to you. Now the corn growers deal in tons and tons and tons of corn. Your experience with corn has been in a can or on a cob in the summer. Obviously, you have to deal with the big order and the contract is the way it’s done. Even if you wound up with 3 tons of corn trading futures at a good price, what are you going to do with it?

Your intention in futures trading is not to actually take possession of the commodity represented, but you hope to profit by the price movement before expiration time. Of course, it can work against you too, but let’s think positively for right now.

• What Can You Trade?

The best known trading futures of course are oil and gold, but there is a never ending list of other things. Agriculture products are popular: gain, corn, cotton, wheat, rice, soybeans, sugar, coffee, cocoa. You can also trade futures in precious metals and energy related commodities. Then there are the financials, those are my favorites. You can trade bonds, indices, currencies, etc., futures.

Trading Futures Ideas, Tips, and Solutions

You can sell futures before buying, but let’s save that for another time. I told you we’re going to stay positive and in a simple format. Most futures traders will think how all investors think – buy first and sell later, hopefully for a profit.

• Details of Trading Futures

A trading futures contract is what is called a derivative. In this case the contract is an actual agreement between a buyer and seller when trading futures. They agree to buy or sell that underlying asset in a predetermined amount at a predetermined price at a predetermined date in the future. That date is the expiration of the contract and that’s in the future.

Unlike options trading in which the parties have the right but not the obligation to exercise the terms of the option, futures trading includes the obligation as well. So, trading futures is more stringent in that regard. Like I mentioned earlier, exercising your option to receive 8 tons of corn is not what you want to do. Therefore, you will always want to close your position before expiration, before that predetermined date from the initial transaction.

• How to Calculate Your Profits and Loss

The movement of the price of the commodity on a daily basis is what determines the success or failure of your futures trade. If you bought a trading futures contract, you felt that the price of that underlying asset (let’s say gold) was going to go up before the expiration date of that contract. Now, if you are successful and the price rises, you still probably don’t have the money to buy 1000 troy ounces of gold, even at a good price. But you make your profits when you sell (before expiration) your gold futures contract. If the price of gold trading futures has risen, you can sell your contract for more than you paid for it, making your profits on the difference. More than likely you will sell your contract (before expiration) to another speculator like yourself, who believes gold will rise further and be worth more before this new contract expires than what he paid you.

You can trade futures 24 hours a day 7 days a week if you want. There is always an exchange open somewhere in the world. Check the website of the Chicago Mercantile Exchange for trading futures or the DTB in Europe.

I always harp on it and I will again. Education is doubly important when it comes to trading futures. You don’t want to learn by trial and error here. It doesn’t take many errors to put you into a second job to pay back your margin call. Paper trade in simulation with free software to start out, and don’t go “live” until you know what you are doing.

Systems and Strategies For Stock Trading Online

This is not difficult and you don’t have to go back to school for a year to make some serious money by trading online, particularly in stocks. You do, however, have to know how to apply what you already know and be willing to become proficient in the variety of tools, software and platforms that you will need to trade online successfully. Things move very quickly in electronic trading and you have to be on your toes, and let me tell you, it’s fun.

Just because you invest on the internet (not in the internet) does not make you a day trader. That definition describes the frequency you trade. So, you can be a long-term “buy and hold” investor and still handle your portfolio online. So, don’t get confused and close your mind over that – that’s a misjudgment.

If you have never traded online, you are in for a real treat. There are other ways to increase your wealth by exploring the avenues made available to us by the internet, but how many of them are fun and you look forward to? Convenience rules and trading online will certainly provide you with lots of convenience.

You can experiment with online trading without actually ponying up your own trading account. It’s called paper-trading in simulation with real time data. The results produced to you from a trade would be the same as if you were actually stock trading online, but it’s only in simulation. It is a fantastic way to learn and become successful at trading stock online. While it is imperative that you learn by practice, you can be up and running more quickly than you might think.

A great broker-provided paper-trading service is offered by my favorite Think or Swim and it’s perfect for stock trading online.

And, you can’t beat Scottrade’s low commission and trader-friendly online tools for stock trading online.

There are risks associated with all investing endeavors, whatever the style you choose. Certain types of investing instruments do provide fewer risks though, and you probably already know that, but I want you to know that regardless of whatever kind of investing you choose, your chances for less risk and higher gains can be had by stock trading online.

Stock Trading Online Offers Advantages Over Traditional Investment Styles

Also, another point is that besides the software and trading platforms you will have to learn, you need to take advantage of all the other information your broker’s website and investing experts’ sites can offer you. By just observing what the pros are buying and selling gives you a clue to market predictions, giving you a great jump on things. You also need to know trading rules and regulations. Read this stuff, then go back and read it again. Get your paper-trading software set up – practice then practice some more. Get to the point where this stuff is second nature to you. I promise it will be worth all the time and attention you put into it. After all, isn’t that why you trade – to make money? I certainly don’t do it because I don’t have anything else to do. It’s all about increasing your wealth, and trading online, particularly stocks, will get you there. Fair warning, if you become as successful as I think you will, I might hit you up for a loan for my stock trading online.

You can find some good online stock trading tips and beginner’s information here and here. These are great resources for stock trading online.

It’s in your best interest to get involved in online trading. We live in a digital fast-moving world. You need to participate and you have to start somewhere. All the super successful traders were once beginners like you and you can be successful like them. So, what’s stopping you? Get started with stock trading online today.

• What is an Option?

While, of course, trading options is not the same, it does in fact have a lot in common with trading stocks and futures. You always want to buy low and sell high.

Easy Steps For Learning How To Trade Options

Options are traded in what is called a contract. A contract is an agreement between two parties, a buyer and a seller, to buy or sell a specified amount of a specified underlying asset by a date in the future. Let’s use stock options as our example, because it is simple to explain how to trade options and we are simple people.

When you own a stock, you actually own a part of that company, even if it’s only one little share. You own that stock and no one can take it away from you. You can sell it, if you want, but it’s yours. Now, you wish that you had enough funding in your trading account to be able to buy another 99 shares of that wonderful stock, but that’s not possible The kids are hungry and momma needs a new pair of shoes, so you look for other ideas.

A stock option contract is representative of 100 shares of the underlying stock. So, there is a way to trade using a smaller trading account. That is by buying or selling stock options.

If I sell you an option on a stock, I have in essence made an agreement with you to deliver those 100 shares of that stock for a price per share determined by the strike price (the agreed to price) of that option at the time the option expires. Well, now that might be a little confusing if you are new to this. It will become more clear in a minute after I explain how to trade options.

If I buy a stock option from you, I have in essence made an agreement with you to accept those 100 shares of that stock for the price per share determined by the strike price (the agreed to price) of that option at the time the option expires.

Can you see the beauty of this in that you can trade the stock market without having to actually invest the full amount that the tangible stock would cost? Trading options is very fluid and quite often turns out to be a better deal than actually buying and selling the stock and that was the purpose for writing on how to trade options.

• Quick Points to Know

I’m going to give you a quick and general rundown on what you need to know how to trade options. You need this, so be patient.

• An option is the right, but not the obligation to buy or sell the underlying asset at a price already determined and at a date already determined. When the expiration of the option contract arrives, the owner of the option may exercise his option to either buy or sell at the strike price.
• A call option gives the owner the right, but not the obligation, to buy the underlying asset.
• A put option gives the owner the right, but not the obligation, to sell the underlying asset.
• Expiration of the contract means that the predetermined date has arrived. The owner exercises or chooses not to exercise his right, and the contract disappears.
• Exercise of the contract means the owner acts to buy (call options) or sell (put options) the underlying asset; or, if things have worked against the owner, the contract just disappears.
• Seller of an option is also called the writer.
• The strike price is the price that the underlying asset will be bought or sold at if the owner chooses to exercise his option. This price was predetermined at the time of the initial transaction.

How To Trade Options on Stocks, Futures, and Forex

You Can Learn to Trade Options

If you are serious about trading options, after a time you will develop your own style and strategies. You will more fully understand the risks and how to lower them; the same way that you will learn to maximize your gains. While there are no promises, and it’s not something you will learn overnight; with persistence and focus, you can easily trade options like a pro. There are some really great opportunities out there for the smart investor.

Here is a good introduction on how to trade options.

Also, ask your broker for guidance – make him earn those fees.

I think this quote sums up the key to success:

“The desire to win is useless without the will to prepare.” — Gordon Wood

Learning how to trade options is an exceptional way to power your portfolio to the next level and we urge you to educate yourself on the subject before taking your first options position.

Options are a versatile and highly used instrument of trading. You already know that all options are a derivative of an underlying asset. Some are simple as stock options and others are more complicated, like Forex options. The same attractiveness of using options trading to limit risks and increase profits is still at play trading Forex options.

Tips and Ideas To Capture Gains With Forex Options

Most investors think of options as a style of trading the stock market, but there’s more to trading options than that. The Forex (Foreign Exchange) (FX) also allows you to trade options. Options are a derivatives that, when traded properly, lower risk and increase gains, but first let’s talk in general about the Forex.

• Forex Trading

I’m going to assume you already recognize the value of option trading and how these derivatives can certainly increase your trading success, so let’s spend a couple of minutes discussing the Forex in general.

The Forex is simply direct access trading of different types of foreign currencies. Until recently the only Forex traders were financial institutions; now you can also participate, thanks to the internet and fast computers. There’s a lot of opportunity in the Forex, so you should at least give it a looky look.

The world’s currencies are on what is referred to as a floating rate of exchange. Trading the different currencies is always done in pairs (USD (US Dollar)/Yen, Euro/USD, USD/CHF, USD/GBP, etc.). But the four major currency pairs are:

• Euro/USD
• USD/Yen
• GBP/USD
• USD/CHF

The Forex market never closes, how could it? Currency never stops being exchanged. Transactions are handled by major banks or large Forex broker houses.

Do it yourself Forex options trading school.

Types of Forex Options

• Call and Put

There are basically two types of Forex options and both of them trade in contracts. Most common is the familiar call and put options. Forex option trades are handled in ways similar to stock option trades. This type of option has lower premiums than SPOT options.

Forex Options Trading Can Be Used As a Hedge Or for Speculation

The popular Forex call and put option gives the owner of the contract the right, but not the obligation, to buy or sell the underlying asset at a set price at a predetermined date (expiration). Now, unlike traditional option trading, the currencies represented are traded against each other. That means that if you buy a call option on one currency, you are simultaneously buying a put in the opposing currency.

• SPOT

The second type of Forex option trade is the single payment option trade (SPOT). There is more flexibility available to the trader. SPOT options have higher premiums than other Forex options. SPOT options are actually easier to set and execute than call put options, especially if you are new to Forex option trading.

Forex options are traded OTC (over the counter) and are by and large unregulated (although that is changing). Traders can choose the price and date of expiration. An order to trade with the criteria you choose is sent out and you will receive a premium notice indicating the price or premium you will be required to pay to obtain the option.

Additionally, brokers divide Forex options further:

• American style – which can be exercised any time until expiration (allowing more flexibility); and
• European style – which can be exercised only at the time of expiration.

Reasons the Pros Like to Trade Forex Options

• Your maximum risk is limited to the option premium that you paid to buy in;
• The upfront money is less for an option than the same cash Forex position;
• Your profit potential is as far as you can take it;
• You set your own price and expiration date (where else can you do that?);
• Each type of option has a variety of choices in setups;
• Current world-wide events are sure to bring volatility to the Forex and you can use that to your advantage;
• Forex option trading is an excellent hedging choice.

The Other Side of the Coin

I write equal opportunity articles, so I’m going to list some reasons that Forex option trading is not so attractive to some:

• SPOT positions are tricky in that you cannot change anything – if you buy in, you can’t sell it;
• The premiums are not easy to calculate by matching to the strike price. The amount you can win or lose is not so easy to determine.

Let’s admit it, learning to trade Forex options does not come easy for most investors, but why not pack this style into your growing arsenal of profit-producing endeavors? During times of economic troubles, national or international, the Forex becomes even more volatile. If you accept that and understand how to trade Forex options, you can increase your trading account significantly.

Forex options for beginners.

Now, yes, we’ve gotten into the nitty-gritty of trading here, but you don’t have to be fearful and back away from Forex option trading. You need not fear, it’s another avenue that will build your wealth and make you happy. Forex options trading offers an abundance of opportunities if you do the homework.

You need to have a general understanding of the Forex market of course. Here you can find the Forex trading school and  Take a quiz on how much you know about the Forex.

Currency Options Offer Unique Opportunities For Investors

Like any other option, currency options give the owner of the option the right, but not the obligation to buy or sell currency (the underlying asset of the derivative) at a predetermined rate of exchange during a predetermined time frame. A Forex option broker will handle the transaction and you pay the premium to him. The premium is determined by the number of option contracts being traded.

Trading currency options is a good way to hedge yourself against currency exchange rates that might move against you. You can hedge against foreign currency losses by buying a currency option put or call. Okay, let’s think about this. If you think that the US Dollar (USD) rate against the Euro (EUR) is going to increase, you would want to buy a call option USD/EUR so that you will profit from any increase in the exchange rate of the currency options (meaning the USD will increase in value and the Euro investors will have to pay more to buy USD’s).

Remember, you have the right to buy the underlying asset of the derivative (option). You are not obligated to, but you have the right to. In this case, you would have the right to buy whatever currency options you have pair optioned at the increased exchange rate.

Traditional traders are put off by the term currency option trading. I know I am. But since writing this article and others on the subject of Forex trading, I’m looking forward to getting involved in currency options.

Here is a list of brokers who offer online currency options trading:

Interactive Brokers

CMC FOREX
GCI Trading
Saxobank
FXCM
Refcospot
MAN Direct
OptionsXpress

Day Trading & Swing Trading Ideas For Currency Options

Currency option trading is not as complicated as you have heard. When you expect the value of our dollar (USD) to grow stronger against another country’s currency, let’s say Japan, there is a way to capture the growing divide. You might believe Japan’s currency options will lose value because of the tsunami devastation. You would want to invest in an option that will allow you to buy a currency pair (USDF/YEN) at a predetermined price within a predetermined period.

Now, in the case I just outlined, both the buyer of the currency options and the person who accepted the purchase can both win. When you buy a stock you pay what the price is at that moment and now you own the stock. When you buy a currency option you have purchased the right to purchase the underlying asset within the date and at the price originally agreed to. Now, if the USD or the YEN do not move in the direction you wanted, all you have lost is the price of the predetermined premium (which you set). The person who accepted your offer of course keeps your premium. Your risk was dramatically lower than other trading styles.

Currency option trading is definitely something you can learn. It may not be your cup of tea, but don’t be intimidated and assume it would fly over your head. If I absorbed most of it, then you can too. You may be surprised what kind of results you can achieve by trading currency options.

There Are Right and Wrong Ways of Trading Stocks

Different Types of Stock Trading

• Long-Term

The long-term “buy and hold” method is the oldest and most used to trade stocks. You could spend ten years reading books by proponents of this method. It’s tried and true, so long as you have the patience to wait while trading stocks. This just means that you buy and hold stocks for a long period. How long is long? At least a year and probably much longer.

• Day Trading – Scalping

This is my style. Day Traders profit from small moves (up or down, makes no difference). The point is, it’s short-term and the desire is to accumulate gains from many quick trades that scalp small profits. Of course, you have to pay the cost of more commissions, but it’s the net after expenses of more wins than losses that is the goal. When the day is over, the trades are over and tomorrow the game begins once more. The only way to get the experience required for proficiency is to practice paper-trading in simulation. You need focus that can only come from planning and practice before you start trading stocks.

• Swing Trading

This is the middle ground method – somewhere between long-term and day trading stocks. Usually if you swing trade, you hold your position for a few days or weeks. Swing traders are the ones who use all those technical indicators and drive everyone nuts with their constant analysis of all possibilities.

Which method you choose is dependent upon your individual style and how much effort you want to put into trading stocks. If you are busy with family and career, then long-term stock trading is probably for you. If you like excitement and anxiety, then you just might be a stock day trader. If you are the middle-of-the-road type, you’re more than likely a swing stock trader.

Regardless of which stock trading method you decide to use (maybe all 3?) you must get the knowledge you need to make good decisions. After all, whether you lose your money in one day or if it takes a year, you still lost it, didn’t you? We’ve all been there, but you can overcome the negative side.

Things You Need To Know To Profit From Trading Stocks

• What is a Stock

When you buy a share of stock, you are purchasing a small piece of that company. Stocks are called shares of the business and the purchase of those shares is known as trading stocks.

• Stock Types

• Common Stock

When you check on stock prices, the information you receive is on common stock, the usual type of shares held by investors.

• Preferred Stock

As owner of a piece of the business, you receive dividends (if they pay them). That’s the major difference between preferred stock and common. Preferred stockholders receive dividends first when trading stocks.

• How to Trade Stocks

There are different type orders you place with your broker to invest in trading stocks. Let’s just review some of them:

• Market Order

This is the most common and quickest way to buy or sell stock. You place a market order and almost instantly a buyer or seller is found for you. You are saying that you will accept the amount that is currently the market price. It’s easy, but you may not get what you want. Things happen fast in the market and you might not wind up where you wanted to be trading stocks.

• Limit Order

Now, this will cost you more in broker commissions, but your trade will not be completed unless you receive the exact amount you indicated in your limit order. This can prevent you from getting filled, but at least you didn’t get a surprise.

• Stop Loss Order

I think this is the most important of all orders. You place a stop loss order at a price below the current market. That way, if the market makes a quick drop, you won’t be caught in the “falling knife,” when prices plummet and you are left in the dust trading stocks. It’s sort of an insurance policy reducing your risk in your trade and I believe it is vital to use stop loss orders.

• Trailing Stop Order

Now the beauty of this order is that, while like a stop loss order, it gives you protection, but it’s protecting your gains instead of limiting losses while trading stocks. If your trade is moving along and you’ve made some profit, you want to protect that, and a trailing stop order will do that trading stocks. As the name implies, it trails along as the price goes up. Your pluses continue to add up. Ah, it’s a beautiful thing.

• Day Order

Simply said, this order is only good until the market closes. Tomorrow you will have to place it again before trading stocks again.

• Good Till Canceled Order

Simply said again, this order is good till you cancel or change it.

If you properly prepare and gain confidence, you can trade stocks like a pro and I hope you do. Trading stocks doesn’t have to be difficult. Remember that becoming a successful investor doesn’t happen overnight. But with time and determination you can certainly become profitable at trading stocks.

• What is Margin Trading?

Simply put, it’s borrowing money from your broker. It’s a way that allows you to buy more than you have the funds to do so in your account. Of course, you have to pay back what you borrow, with interest. And because you can trade more, you’ll be paying more in commissions. The broker is not going to lose anything, is he? There are different rules with different brokers, but generally you can borrow up to 50% of the purchase price of your trade.

Using Other People’s Money (OPM) is Known as Margin Trading

Margin trading calls for short-term investing methods. You can hold your loan open so long as you have funds to cover your borrowed amount, but sometimes your profits will be eaten up in interest. And remember, your broker will always get paid first when you close the trade. It’s vital you pay attention to what is going on.

• What Do I Need to Margin Trade?

Well, of course, first of all you need a margin account to get started in margin trading. It’s more involved than a regular trading account. You have to apply and be approved, and that means supplying required personal information, including authorization for a credit check. Once you are approved you can begin, but once again, understand what you are doing.

This is a good introduction to margin trading.

• How Much Do I Need To Trade On Margin?

You can margin trade with as little as a $2,000 margin account, but how long is that going to last you? This minimum margin doesn’t leave much room to develop and work your strategies. Remember that the purpose is to invest your money – not to gamble, so use proper risk control when margin trading.

• Margin Call

A maintenance margin is the minimum amount you must keep in your margin account. Below that and your broker will request you make a deposit or liquidate some of your position in order to pay down your loan. That’s what is known as a margin call when margin trading.

• Examples of Margin Trade

Okay, you open your margin account with $5000. Rules say you now have the ability to buy $10,000. Let’s say you buy $2500 of a stock, you have $2500 remaining in your margin account, right? You didn’t borrow any funds and all is well and you work your trade.

But if you were to buy $7500 worth of a stock, you now have borrowed $2500 and you are in a margin trade. You will pay interest on that $2500 and if your position makes a profit, you exit when ready and pay back your loan and interest. Once again, all is well.

Margin Trading Benefits Experienced Investors Who Understand Risk Management

But if your trade loses enough, you will receive a margin call. And, let me tell you from personal experience, they mean what they say. If you ignore or procrastinate from following the directives of that phone call or email or however they notify you, you will wake up one morning and find your position has been closed and your account balance is zero and no more margin trading for you. You might have been in a trade you felt that, given enough time, would have made you a tidy profit, but because you didn’t deposit additional funds to your margin account when you received that margin call your stock was liquidated and your trade closed. Your broker is not going to lose anything.

Do you see why a small $2000 initial margin account is not enough to realistically trade anything? You can loose your caboose in a big hurry.

As with all investing efforts, it’s important to educate yourself and understand how margin trading works, especially before crunch time comes and you have to quickly make a move.

“The desire to win is useless without the will to prepare.” — Gordon Wood

There are good ways and bad ways to leverage your money. Be sure to spend the time necessary to understand the risks involved and by doing so you just may be able to propel your gains through margin trading.

Let’s clear up the most often asked question about futures and options and that is – what is the difference between the two? Have a little patience here and I’ll do my best to explain, okay? Please don’t shoot the messenger though.

• More Complicated Than Other Investments

Both futures and options trading is more complicated than straight-forward investment methods like stock trading. You can sound like you know more than you do by calling them F & O’s. You will need to educate yourself more thoroughly if you want to enjoy the success that is certainly available in the futures and options trading market. Both types of contracts are relatively short-term (less than a year) so you are not tied up in any really long-term position.

Strategies and Systems for Trading Futures and Options

• What is the Difference Between Futures and Options

While the contracts that the instruments trade on (the derivatives) are similar in that they both deal in a specific quantity and a specific price and a predetermined date in the future of the expiration of that contract, the basic difference between futures and options is this:

A futures contract “obligates” the owner to buy or sell a specific quantity of the underlying asset at a specific price on a specific date. However, an option contract gives the “right,” but not the “obligation,” to the owner to buy or sell a specified quantity of the underlying asset at a particular price by a specified date in the future. So there is a difference with futures and options.

Trading futures and options includes speculation on future prices of stocks, commodities, currencies, indices, etc; but remember, that options give you the “right” to follow through, but not the “obligation,” and futures trading mandates an “obligation” to buy or sell the underlying assets at the predetermined date. One major rule to always remember when trading futures is to close your position prior to expiration of the contract, or you could find yourself in trouble.

Learn Before You Earn – Great Advice for Futures and Options Trading

• Object of Trading Futures and Options

As in all futures and options trading, the object is to buy in at a lower price than you close at, and the reverse for the seller. The buyer of an option or futures contract is planning on the underlying asset going higher in value before the date of expiration of the contract; thereby making a profit on his futures and options transaction when he closes or sells his position.

The seller of an option (also called the writer and not to be confused with futures and options) is planning on the value of the underlying asset declining in value before the date of expiration of the contract; once again, thereby making a profit on his transaction. The representative asset is now worth less than he sold it for, so he keeps the profit.

Of course, it can all reverse on you and you will suffer a loss, but I am choosing to remain positive here.

• More Explanation of Futures Contracts

Now when you trade in futures and options, or specifically in futures, both the buyer and the seller of the contract is obligated (does not have a choice) to fulfill that part of the agreement. If you bought a futures contract, you hoped to be able to sell it before the date of expiration for an amount more than you paid. Of course, most typical traders (speculators) don’t want to actually have to buy the underlying asset, but gain the profit when they sell it to someone else who may want to actually buy that underlying asset at a price lower than it is currently trading for. In that event, the owner gets to keep the profit; he sold it at closing for more than he paid for it.

The seller of futures contracts believe the underlying asset will decline in value, and once again, they will close their position before expiration and keep the profits.

By closing your trade in the opposite direction of your position prior to expiration, you don’t have to actually take possession of or make delivery of whatever the contract was for, regardless if it was futures and options. If it’s a commodity, like, let’s say bananas; unless you are zoo keeper, what are you going to do with all those bananas?

• More Explanation of Options Contracts

Now, let’s make another jump. If I would love to buy 100 shares of Carla’s Creamy Cookies (CCC) but at $50/share, I just don’t have that kind of trading account. So, I bought 1 option of CCC (which represents 100 shares of CCC) with a strike price of $55 and an expiration date 2 months in the future. During that 2 month period, the future King of Texizonafornia fell in love with Carla’s Cookies and proclaimed to the land that they were the best cookies of all. Then probably CCC would climb in price substantially; let’s say to $70/share. Because I bought an option that gives me the right to buy CCC at $55 and I recognize the great opportunity that had just befallen me, I would most likely buy 100 shares of CCC at $55/share, instead of selling my option. I was able to buy 100 shares of a $70 stock for $55 – how do you like them apples?

This gives you a general explanation of the difference and that trading both futures and options have their place in your investment portfolio. Automated trading is a great way to play the futures and options game, but that’s for another article.

Here are a couple of great tutorials that will explain more fully the fundamental of futures and options trading.

“The desire to win is useless without the will to prepare.” — Gordon Wood

The argument over which you should trade – futures or options, will certainly never be settled here. So, do you homework, study and learn – watch what the pros are doing. That is your key to success. There are great profits available to the astute investor who is willing to put forth the time and energy necessary to become a successful futures and options trader.

This is a world where novice investors are hesitant to tread, but that need not be the case. Let’s talk a little about the fundamentals involved in trading commodity futures.

• What are Commodity Futures?

Simply stated, a contract to buy or sell commodity futures is an agreement between two parties to buy or sell a commodity (which is literally anything that represents commerce – products and services) at a predetermined price at a predetermined date in the future.

Commodity Futures Trading Explained

When commodity prices go up, the buyer of a futures contract makes a profit. Simple math – it’s now worth more than he paid for it. The reverse of course is that if prices decline, he is sitting on a loss – it’s now worth less than he paid for it.

When you shop for groceries at the supermarket, there is another market that determines the price you pay for apples and oranges — the commodities futures market.

• First Lesson

The biggest lesson to learn (and oh boy, it’s a doozy) is to properly close your position or else you could find yourself with a truckload of soybeans in your yard. If you bought a contract to take possession of those soybeans by a certain date, that’s what will happen unless you sell that contract before expiration. Gold I could handle, soybeans? – not so much.

There is a good  beginners guide here.

• Who Sets Commodity Futures Prices?

The pricing of commodity futures is set by the agreement between the buyer and the seller, in an open market. There are analysts whose entire job is just to evaluate future prices for one particular commodity. Since pricing is generally based on news, weather and general sentiment, prices can change very quickly. For that reason, many futures traders will invest in commodity indices or a commodities fund. That gives you a chance for a less bumpy ride – it spreads the sharp market movements of individual commodities into a broader spectrum with less volatility.

Several Markets and Trading Vehicles for Commodity Futures

• What Commodities Can I Trade?

The most commonly traded commodity futures are gold and oil. Agriculture products are heavily traded, but small speculators usually stick with precious metals and energy. But some popular commodities are:

corn, wheat, cotton, cattle, rice, electricity, coal, gas, heating oil, lumber, copper, silver, pork bellies, concentrated orange juice, cocoa, sugar. And most of those are subdivided into smaller categories.

Remember, commodities are the goods, the actual products traded in commerce. The futures are contracts for the exchange of those commodities and are traded at a futures exchange.

• Risk

This is indeed a risky form of trading, but it is rather easy to do and learn. Lower that risk by educating yourself and employing basic principles of trading. You want to buy low and sell high, and, I’ll repeat – close your position properly. Think of the commodity futures contract as shares of stock.

• Trading Account

You don’t need much in your trading account to dip your feet into commodity futures. Having said that, most experts advise no less than $10,000 to begin, but you can actually trade with as little as $5,000 in your account.

• Rapid Price Fluctuation is Possible

It’s not only possible, it’s probable. Developing news of disasters, political unrest, weather reports (favorable or not) all affect the price of commodities daily, and sometimes by the moment. Pay attention.

As regular speculators, trading commodities for you and I is relatively straight-forward, and you know what you get in at and what you hope to gain when you exit, but often the companies and entities who actually produce the commodity will use hedging efforts to protect their interests. This can cause rapid commodity price movement.

There is much more to learn about trading commodity futures than I am able to tell you here. You may want to learn more from The U.S. Commodities Futures Trading Commission http://www.cftc.gov/.

Remember that becoming a successful investor is not a race and it’s imperative that you do your homework and study hard. But if you are willing to commit to the hard work then there are definitely some huge profits waiting on you in the world of commodity futures trading.

For everything that requires any voluntary action in this life, you can bet there is a strategy to provide the best result, and having a strategy for trading options is no exception. Good ideas, plans and serious maneuvers to promote your success trading options is what we are going to talk about. Ready? Let’s think about this.

Different Types of Option Strategies

1. Trade Low Priced Options Strategy

There are option traders who only buy under priced options and I’m going to list that as the number one strategy. Of course, what’s new about that? Everyone knows buying an undervalued stock is a smart move, and trading stock options has already established itself as one of the preferred methods of investing.

Now, if you are just “experimenting” in trading options and haven’t yet decided if it’s your thing, it’s a lot easier to swallow a loss of a low priced trade instead of having to lie to your wife about what it really cost you. Well, another way to look at it is that your overall percentage gain on a lower priced option is going to higher than a gain on a “rich boy’s” option, and, conversely, the percentage of loss will be less. When your position moves “into the money,” take those nice profits and hit the exit button.

Also, the underlying instrument of your option doesn’t have to be going up in price either. You can make some serious gains taking advantage of falling market prices. It’s the strategy of trading low priced option strategies that makes the difference.

2. Trade Stock Options Strategy

I don’t see how you can lose if you use this strategy and also number 1. If you take the time to understand option strategies this is your chance to get in the game with very little money up front. When you believe a stock price is going to increase, you buy a call option (remember one option contract represents 100 shares of the actual stock) for very little compared to the cost of the stock itself. If I want to buy 100 shares of the latest fad “Purple Popcorn,” (PP), at $40/share, I would have to cough up $4,000. But, instead, I can buy one call option of PP for maybe only $20. Now, that’s a no-brainer, right? What you need to remember though is to look for inexpensive options that are also close to the money (meaning the strike price of the option strategies is near what the stock is currently trading  at), and try to look for far out expirations (giving you the advantage of more time).

Option Strategies Can Be Used To Grow Capital or Preserve Wealth

3. Call Options Strategy

This of course is a very generic type of options trading. While it’s simple and straight-forward, you can lose your milk money in a quick hurry if you don’t have the proper option strategies. Some traders would not dream of positioning themselves in anything but a call trade and planning on increasing prices. The thing is to do your homework and make it work for you.

4. Put Options Strategy

Trading an option strategy than includes puts ensures you profits in a falling market. When that quick pullback occurs, you aren’t left in the red. If you buy puts, your strategy is that you want the price of the underlying instrument to decline. It’s obviously the reverse of the call option strategies, and it has its place. There are those who prefer this option strategy above all others.

5. Three Point Trading Range Strategy

This may not work for the newbie, but it does in fact work. Once again, using the stock option strategies as the example, if you look for a stock that is moving in a three point range, enter your call option strategies position when the stock price is at the low of that range. In reverse, enter your put option trade when the stock price is at the high of that range.

6.  Take a Percentage Profit/Loss Strategy

Another popular options trading strategy is to predetermine what your profit plan is and stick with it. If you decide you want a 15% profit or if you decide the most you are willing to lose is 10%, set that into your overall strategy and trading plan. Place your trading limit orders accordingly. This strategy lowers your risk considerably. After all, your goal is make more winning trades than losing trades and utilizing a percentage strategy will get you there and this remains one of the best option strategies.

7. Think of the Future – Get Long Term Gains by Trading LEAPS

Normally, trading options is a day trader’s mode of investing, but if you are interested in the “buy and hold” strategy, LEAPS are for you. You can hold your position for over two years before expiration. A LEAP is a regular option that has a long-term expiration. The stock option strategies has a long time to move around in its chart. Just think of what all has happened in the market in the last eighteen months – all that change has affected every stock, commodity, index, and so on. You can use that time to your advantage.

Investing in LEAPS option strategies is a very popular options trading strategy and it also helps for a better night’s sleep.

There are of course many more advanced option strategies than we have touched on here. We’ll save that for another lesson or you can check out this site http://www.888options.com/resources/literature/files/options_strategies_quick_guide.pdf  But in the meantime you can take advantage of some of the things we have mentioned. It’s not hard, just remember to fall back on your Boy Scout training, and “be prepared.”

All option strategies are not created equal so it’s important to perform your due diligence and not be afraid to roll up your sleeves and study intensely to achieve success.