Chose Your Sword: Finding the best Market to trade (and how to trade them)
After you've looked over what kind of time frame you'd feel most comfortable trading in, the next big step is figuring out which market to trade. Over the past couple of decades, many markets that were previously unavailable for the common trader to trade have opened their doors to all traders. Options have become a popular way to trade moves in stock prices by using a decided strike price and premium to pay based on controlling (but not owning) 100 shares of stock. Options have Calls (for bullish) and Puts (for bearish) and in each Call/Put you have the "Bid and Ask" to be a buyer you would only use the Ask to enter trades. Futures are also a fairly new way to trade for an active trader as they trade almost 24 hours a day and are used to gauge intraday market fluctuations. The Forex (Foreign Exchange) is the trading of currency, this is the largest market in the world and with it comes a whole new and different approach than that of trading equity (stocks). Lastly we have plain stock and ETF's which stand for Exchange Traded fund, which basically means its a diversified group of stocks placed into one Ticker; this has become one of the easiest ways to diversify ones account without having to expose yourself to some of the volatile aspects of owning plain stocks.
Types of Markets:
This list above lists the different basic sectors of markets one can trade today. From top to bottom I would also have to say that the amount of knowledge/education/experience needed for each one follows down the same line. If your interested in trading options i would suggest that you at least have traded some stock and have a decent understanding of how they work before taking on Options (or any of the others). This isn't meant to scare people away from the different forms of trading, It's more of a warning to know what your trading - before you trade it. The best thing about trading is that you can make a living just implementing one trading strategy on one market.
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How to trade each market:
Bid (Selling Price) / Ask (Buying Price)
With plain equity/stocks, trading is done in the simple Bid (Sell Price) / Ask (Buy Price). If you are looking at a chart of XYZ (just an example) and are Bullish (think that the trend will continue up) then when you see the right moment you would click the ASK button and buy some shares. If one was Bearish (think the trend will break down lower) then one would want to short the stock by clicking the BID button. Usually there is a spread between these two prices for example: Bid 45.50 Ask 45.55, this spread between the prices should always be looked at, especially with options as sometimes the Market Makers (people putting the trades through) will pump those spreads up to make the difference. Once in a trade, either short or long, one exits a trade using the opposite form they got into the trade with, ex: if you got long at 70, and want to close it, you would click the Bid to sell it. The simple Bid/Ask system works on all forms of markets however, the way each market trades is different.
With Options there is the Bid and Ask price, but that's about the only similarities they share with regular equity. With Options you pay less than owning the stock, but you have a time limit and are at risk to swings in volatility Options work sort of like an insurance policy on your home. Many times they are used for 'insurance' on your owned Stock. For example if you bought a home for 150,000 and bought a insurance policy on your home, You pay a premium for that protection. An Option works in the same way, You chose a strike price (a price at which you may buy the stock at no matter what the stocks price is at) and pay a premium to receive the stock at that price. When you buy an option you pay the premium for contract (x100 shares of stock = premium is 4.5x100 = 450 premium) The premium is made up of two parts: 1) Intrinsic or how much over your strike price is the stock price (if the strike is 45 and the stock is at 47.5, you have $2.5 intrinsic value on your option premium. 2) Extrinsic or Time Value, this is the amount of your premium your paying for Time, which is always fading away the minute you buy it. Also with options one can be the buyer or seller of an options but that I will get into more later.
Moving on to the Futures markets which are very similar to Stocks with the only major difference being in the hours they trade, and the way that they move. Futures are the markets version of a 24/7 convenience store. Always open, and always telling us something. Many people have flocked to the futures markets, but before one wishes to trade these please understand the risks involved. First, futures trade on Margin (meaning that to take a trade costs nothing but the transaction costs) this might sound appealing until one understands that this could carry almost unlimited risk if not traded properly. Also the futures markets all trade in different increments, for example the /ES futures (S&P500) trade in 0.25 ticks, every move up or down goes 0.25-0.50-0.75.....etc, and each tick is worth $12.5 per contract so one full point move = $50. The Dow Futures (/YM) move in 1 pt increments all worth $5...So one must first comprehend each futures unique way of movement.
Lastly is the Foreign exchange markets. These markets are truly something that helps the world spin round. They are the largest traded public market in the world and almost every currency is trade able, although there are bigger currency's that take up a lot of the volume. The Forex market is available to trade in two forms, first is the cash market (www.FOREX.COM) and second is through the CME (Chicago Mercantile Exchange) which is called the Forex Futures I believe. Also if one does not wish to take on the added risk/leverage of Forex trading, one can trade Currency related ETF's on the normal stock exchange. For any new comer to trading this would be most recommended. The Forex uses the Bid/Ask platform just like Stocks, Options and Futures with the twist that when you trade the Forex you are literally trading Money. The Bid/Ask might look something like this 1.2403 the last two digits are usually whats being traded and are called Pip's. Each Milicent equals a Pips movement and like the Forex market each pip/tick movement is worth a different amount depending on the Countries currency
I hope this long winded entry is useful, Happy Trading
-------------------------------
Important Disclaimer! This website is for entertainment/educational purposes only. Equities, Futures, Options, and Currency Trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Absolutely do not trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell equities, futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Absolutely consult your Registered Financial Advisor and your Risk Trading Plan before ever investing or trading any financial instrument!
Vision Wealth Management
After you've looked over what kind of time frame you'd feel most comfortable trading in, the next big step is figuring out which market to trade. Over the past couple of decades, many markets that were previously unavailable for the common trader to trade have opened their doors to all traders. Options have become a popular way to trade moves in stock prices by using a decided strike price and premium to pay based on controlling (but not owning) 100 shares of stock. Options have Calls (for bullish) and Puts (for bearish) and in each Call/Put you have the "Bid and Ask" to be a buyer you would only use the Ask to enter trades. Futures are also a fairly new way to trade for an active trader as they trade almost 24 hours a day and are used to gauge intraday market fluctuations. The Forex (Foreign Exchange) is the trading of currency, this is the largest market in the world and with it comes a whole new and different approach than that of trading equity (stocks). Lastly we have plain stock and ETF's which stand for Exchange Traded fund, which basically means its a diversified group of stocks placed into one Ticker; this has become one of the easiest ways to diversify ones account without having to expose yourself to some of the volatile aspects of owning plain stocks.
Types of Markets:
- Plain Stock / Equity
- ETF's (Exchange Traded Funds)
- Stock OPTIONS (Not available on all stocks)
- The Futures market
- Forex (Foreign Exchange / Currency)
This list above lists the different basic sectors of markets one can trade today. From top to bottom I would also have to say that the amount of knowledge/education/experience needed for each one follows down the same line. If your interested in trading options i would suggest that you at least have traded some stock and have a decent understanding of how they work before taking on Options (or any of the others). This isn't meant to scare people away from the different forms of trading, It's more of a warning to know what your trading - before you trade it. The best thing about trading is that you can make a living just implementing one trading strategy on one market.
------------------------------------------------
How to trade each market:
Bid (Selling Price) / Ask (Buying Price)
With plain equity/stocks, trading is done in the simple Bid (Sell Price) / Ask (Buy Price). If you are looking at a chart of XYZ (just an example) and are Bullish (think that the trend will continue up) then when you see the right moment you would click the ASK button and buy some shares. If one was Bearish (think the trend will break down lower) then one would want to short the stock by clicking the BID button. Usually there is a spread between these two prices for example: Bid 45.50 Ask 45.55, this spread between the prices should always be looked at, especially with options as sometimes the Market Makers (people putting the trades through) will pump those spreads up to make the difference. Once in a trade, either short or long, one exits a trade using the opposite form they got into the trade with, ex: if you got long at 70, and want to close it, you would click the Bid to sell it. The simple Bid/Ask system works on all forms of markets however, the way each market trades is different.
With Options there is the Bid and Ask price, but that's about the only similarities they share with regular equity. With Options you pay less than owning the stock, but you have a time limit and are at risk to swings in volatility Options work sort of like an insurance policy on your home. Many times they are used for 'insurance' on your owned Stock. For example if you bought a home for 150,000 and bought a insurance policy on your home, You pay a premium for that protection. An Option works in the same way, You chose a strike price (a price at which you may buy the stock at no matter what the stocks price is at) and pay a premium to receive the stock at that price. When you buy an option you pay the premium for contract (x100 shares of stock = premium is 4.5x100 = 450 premium) The premium is made up of two parts: 1) Intrinsic or how much over your strike price is the stock price (if the strike is 45 and the stock is at 47.5, you have $2.5 intrinsic value on your option premium. 2) Extrinsic or Time Value, this is the amount of your premium your paying for Time, which is always fading away the minute you buy it. Also with options one can be the buyer or seller of an options but that I will get into more later.
Moving on to the Futures markets which are very similar to Stocks with the only major difference being in the hours they trade, and the way that they move. Futures are the markets version of a 24/7 convenience store. Always open, and always telling us something. Many people have flocked to the futures markets, but before one wishes to trade these please understand the risks involved. First, futures trade on Margin (meaning that to take a trade costs nothing but the transaction costs) this might sound appealing until one understands that this could carry almost unlimited risk if not traded properly. Also the futures markets all trade in different increments, for example the /ES futures (S&P500) trade in 0.25 ticks, every move up or down goes 0.25-0.50-0.75.....etc, and each tick is worth $12.5 per contract so one full point move = $50. The Dow Futures (/YM) move in 1 pt increments all worth $5...So one must first comprehend each futures unique way of movement.
Lastly is the Foreign exchange markets. These markets are truly something that helps the world spin round. They are the largest traded public market in the world and almost every currency is trade able, although there are bigger currency's that take up a lot of the volume. The Forex market is available to trade in two forms, first is the cash market (www.FOREX.COM) and second is through the CME (Chicago Mercantile Exchange) which is called the Forex Futures I believe. Also if one does not wish to take on the added risk/leverage of Forex trading, one can trade Currency related ETF's on the normal stock exchange. For any new comer to trading this would be most recommended. The Forex uses the Bid/Ask platform just like Stocks, Options and Futures with the twist that when you trade the Forex you are literally trading Money. The Bid/Ask might look something like this 1.2403 the last two digits are usually whats being traded and are called Pip's. Each Milicent equals a Pips movement and like the Forex market each pip/tick movement is worth a different amount depending on the Countries currency
I hope this long winded entry is useful, Happy Trading
-------------------------------
Important Disclaimer! This website is for entertainment/educational purposes only. Equities, Futures, Options, and Currency Trading have large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Absolutely do not trade with money you can't afford to lose. This website is neither a solicitation nor an offer to Buy/Sell equities, futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this website. The past performance of any trading system or methodology is not necessarily indicative of future results. Absolutely consult your Registered Financial Advisor and your Risk Trading Plan before ever investing or trading any financial instrument!
Vision Wealth Management
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