It is well known that financial derivatives are often complex and surrounded by many fallacies, and this reality unfortunately accompanies even the options contracts that we will discuss today. The number of options contracts traded last year exceeded 10 billion contracts, and these statistics only cover the US market. This huge number refers to the important position that options contracts have come to occupy, especially since they are a flexible financial instrument and provide many solutions for investors to achieve respectable returns. Believe me, you will be lucky to read the article, especially if you are a beginner or looking for the truth about making quick profits from trading in the options market, as deceptive advertisements or some pseudo-experts on social media platforms claim.
What are options contracts? A detailed explanation with advantages and disadvantages
Our team has explained options trading in detail with advantages and disadvantages to help beginners learn risk management and safe investing in the options market while making good profits.
What are options contracts? A simple explanation
Option contracts are an agreement between two parties, the seller and the buyer, whereby the buyer is given a financial document or futures contract that guarantees him to obtain the asset in exchange for the strike price on or before the agreed date. For information, options contracts were first issued in 1973 by the Chicago Board Options Exchange (CBOE), which at that time were limited to only call options contracts. Trading options contracts falls within the scope of financial derivatives, which were listed primarily to help investors with hedging flexibility by reducing the risks associated with sudden changes in the value of assets. Options also provide a suitable opportunity for speculators to make good profits, by exploiting changes in the values of the assets from which these contracts are derived. The most important feature that enhances the feasibility of investing in options contracts is that they are binding on the seller who owns the asset, while the investor who holds the contract has the right to abstain or execute according to the extent to which price fluctuations suit his interests. Also, in the event that the investor terminates the contract, he only loses the premium (insurance) amount, which is paid in advance when concluding the contract.
The most prominent disadvantages of options trading are the need to activate leverage in order to open an options position and high broker commissions, which may expose you to huge losses in the event of failure of expectations and strategies followed. It should also be noted that trading options contracts is not suitable for all investors, especially beginners, because opening an account on one of the professional options trading platforms requires thousands of dollars. The reliable TastyTrade platform for trading options contracts requires an initial deposit of $ 2,000, while its competitor TD Ameritrade requires a deposit of at least $ 25,000. Some may also wonder whether options contracts are halal or haram? The short answer is halal as long as the source of the contract owns the commodity, while most scholars tend to prohibit buying contracts from speculators because a Muslim is not allowed to sell what he does not own. This explains the absence of the option to trade options contracts from the Saudi Stock Exchange for a period, and it was not listed until the past years after the economic reforms carried out by the Kingdom to enhance its attractiveness as a global financial and economic center according to Vision 2030.
#IntroToCopytrading #MarketDownturn #FavoriteToken #elaouzi #BinanceTurns7
