New technologies give new opportunities. Together with the internet, many new ways of making money online have emerged. Financial brokers had begun to work online, to launch the platforms where the traders could easily enter the markets.
Sitting in the privacy of their home or office, traders had started to buy and sell all the financial instruments available like CFDs, commodities, currency pairs, or indices. And later on, the brokers implemented fixed-time derivatives.
This financial derivative as a new asset gained popularity among the traders very fast. Nonetheless, in some jurisdictions, financial institutions have prohibited derivatives trading. What was the reason behind such a decision?
Financial derivatives trading was claimed by many to be a gambling form.
Is this the case? Can you call Olymp Trade a gambler?
In today’s guide, I will tell you what derivative trading really is. Let’s get started.
Overview of Fixed-Time Financial Derivatives
Fixed-time financial derivatives are a form of derivative security. The value of this security is strictly related to the value of the assets that are underlying them. This further means, that a derivative trader does not buy the underlying asset. He is not the owner of it. Instead, he speculates on the price in a specified period. He decides whether it will grow or drop.
In other words, your main task while trading derivatives at Olymp Trade is to establish the direction the price of the underlying asset will go. To predict if the price is going up or down.
Trading fixed-time derivatives on the Olymp Trade platform
First, you need to choose an asset. To do that, click on the field with a current instrument and select a financial derivative. You will see the list of all assets available for trading this security.
In the example below, I decided to trade the EURUSD currency pair with 5-minute candles.
The second step is to choose the duration of your transaction. You can also set a specific time in which you want a derivative to expire. Just choose the expiration instead of duration.
Now, you have to decide on the amount you would like to invest in this particular trade. Enter the number or use plus/minus buttons.
In the end, click one of two colorful buttons. If you speculate the price will go up, choose the green button. If you think the price will fall, select the red one.
Could trading fixed-time derivatives be a type of gambling?
The similarity lies in the basics. Both gambling and derivative trading can bring you money, but can also result in loss.
According to many people, trading derivatives is a form of gambling. They think it is only down to luck whether you win or lose. The truth is, derivative trading is so much more. It is not as simple as hitting the up or down button.
Trading this security requires you to develop all sets of skills. To succeed as a derivative trader you will have to spend hours reading and learning, analyzing the charts, implementing different strategies. It is also very important to incorporate adequate financial and emotional management.
Some will insist, that the brokers manipulate the market, and thus, trading derivatives is a falsification. And although the brokers own the platforms, they cannot change too much or they will be discovered and banned. The brokers and the traders are using the same price charts. The probability of manipulations is very low.
Pros and Cons of Fixed-Time Financial Derivatives😃😞
- Potential for high returns in short periods.
- Not required to own the underlying asset.
- Can trade a wide variety of assets.
- High risk of loss due to the volatile nature of markets.
- Requires significant learning and practice to trade effectively.
- Can be mistaken for gambling due to speculative nature.
Derivative Trading vs Traditional Asset Trading
|Derivative Trading||Traditional Asset Trading|
|Trading is based on predicting price movements.||Trading involves buying and selling actual assets.|
|Potential for high returns in short periods.||Returns typically depend on long-term asset performance.|
Exposure of fixed-time derivatives trading
As you trade different financial instruments like stocks or fx, the only way to buy an asset is when someone elsewhere is selling. And the only way to sell an instrument is when someone is buying on the other side.
The situation looks a little bit different in derivatives trading. Basically, you speculate on the direction of the price during a certain period. You do not buy and sell to another trader, but your broker. So the broker is entitled to determine the percentage of the payout on successful transactions. By doing so, the broker continues to make money regardless of whether the transactions are winning or not.
Therefore, there is no point in manipulating the prices so that each transaction losses.
There are plenty of newcomers who consider derivatives trading as a fast way to earn a lot of money. This is not the case. To become a successful trader, you will have to invest your time. You will have to learn a lot. To read the price charts, to apply appropriate capital management strategy, and to have control over your emotions are some of the essential competencies. All of this distinguishes trading from gambling.
Wish you an enjoyable experience!
Common Questions about Derivative Trading
- Q: Is derivative trading the same as gambling? A: No, while both involve risk and potential returns, successful derivative trading requires skill, knowledge, and strategy.
- Q: Do I need to own the assets I trade in derivatives? A: No, derivative trading is about predicting price movements, not owning assets.
- Q: How can I learn to trade derivatives effectively? A: This requires dedicated learning and practice. You can start by using Olymp Trade’s demo account.
- Q: Can I lose money trading derivatives? A: Yes, there’s a significant risk of loss due to the volatile nature of markets.
- Q: Is derivative trading a quick way to make money? A: No, while there’s potential for high returns, it requires proper skill, strategy, and emotional management.
We are sorry that this post was not useful for you!
Let us improve this post!
Tell us how we can improve this post?