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, forex or indices. And later on, the brokers implemented options.
Options as a new asset gained popularity among the traders very fast. Nonetheless, in some jurisdictions, financial institutions have prohibited options trading. What was the reason behind such a decision?
Options 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 options trading really is. Let’s get started.
Options are a form of derivative security. The value of an option is strictly related to the value of the assets that are underlying them. This further means, that an option 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 options 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.
Options trading 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 options. You will see the list of all assets available for trading options.
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 an option to end. 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 colourful 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 options be a type of gambling?
The similarity lies in the basics. Both gambling and options trading can bring you money, but can also result in loss.
According to many people, trading options is a form of gambling. They think it is only down to luck whether you win or lose. The truth is, options trading is so much more. It is not as simple as hitting up or down button.
Options trading requires you develop all set of skills. To succeed as an options trader you will have to spend hours reading and learning, analysing 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 options 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.
Exposure of options 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 options 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 options 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!
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