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Options Trading for Beginners

Options are a form of derivative contract that gives buyers of the contracts (the option holders) the right (but not the obligation) to buy or sell a security at a chosen price at some point in the future. Option buyers are charged an amount called a premium by the sellers for such a right. Should market prices be unfavorable for option holders, they will let the option expire worthless and not exercise this right, ensuring that potential losses are not higher than the premium. On the other hand, if the market moves in the direction that makes this right more valuable, it makes use of it.

Options are generally divided into "call" and "put" contracts. With a call option, the buyer of the contract purchases the right to buy the underlying asset in the future at a predetermined price, called exercise price or strike price. With a put option, the buyer acquires the right to sell the underlying asset in the future at the predetermined price.

Let's take a look at some basic strategies that a beginner investor can use with calls or puts to limit their risk. The first two involve using options to place a direction bet with a limited downside if the bet goes wrong. The others involve hedging strategies laid on top of existing positions.

How To Become a Professional Trader :

Learn the trading basics. ...
Learn the advanced basics. ...
Develop trading systems and techniques. ...
Gain trading experience. ...
Consider paper trading. ...
Choose a reliable broker. ...
Learn to focus. ...
Understand risk management.

Understanding the basics of trading can help you gain entry-level knowledge in the field that you can refer to throughout your entire career. The basics of trading are factual, data-driven and processed-based pieces of information, but they may vary slightly depending on the source. This doesn't mean only one source is correct. Rather, multiple sources can help give you a range for understanding what's currently successful in the field. Trading basics may include:

The amount of capital required to trade effectively
The best markets in which to trade
Best practices for monitoring trade performance
Information about bidding and asking prices
Order types and how to place them
Risk management practices
Trading hours
Trade active
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