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Derivatives Trading

What are derivative options?

What is the first thing that comes to your mind when you hear the word “trading”? – It’s probably numbers, constantly changing indices, quotes and profit which is extremely hard to calculate. Another word for it is “complex”. And it was, until derivative options came to market. You don’t have to be an expert in economics to trade profitably in derivative options. As it is a form of investing, it is obviously still not a piece of cake – you’ll need to spend some time learning how it works and how to make accurate predictions in order to be able to make substantial profit. However, the process itself is much easier than, let’s say, Forex.

Most forms of trading imply that an investor is actually buying an asset and his profits or losses depend on the changing value of the asset over various periods of time. In derivative options, on the other hand, no real product is bought. Basics of derivative options are fairly simple: based on market tendencies and some other factors, a trader makes prediction about movement of prices of various assets, which most commonly are currency pairs, precious metals and indices.

How derivative options work?

One of the reasons derivative options have become so popular is the simplicity of the process: there are just two types of predictions that are required: a trader should decide if the price of the chosen asset will increase or decrease. He then chooses how much he wants to invest and the expiration time of the deal. A trader profits from the return rate, which is stated before the option starts – that makes the outcome perfectly clear.

For example, a trader thinks that in two hours the price of EURUSD pair will be higher than at the moment and chooses to invest $100 with 80% return rate. If after two hours the price goes up, – he receives $180 to the account. If it goes down the loss is only the initial investment which is $100.