In today’s market, technology has become an integral part of our daily lives. You probably use it every day without even realizing it!
Technology is used for everything from banking to shopping to investing. It seems like everyone these days has their own smartphone with them at all times.
Trading is no different. Technology has completely altered the way traders interact with the markets. Gone are the days when people would simply tell their broker what trades they wanted made before going home each night.
With the advent of computer software designed to facilitate trading, investors have access to a never-ending stream of information. Technically trained individuals now have the ability to actively manage their investments on their behalf.
A growing number of brokers offer this service to clients as “option brokering.” This article will go in-depth about one such firm – OptiBrokers.
We will discuss how option broker works, some pros and cons of this style of investment management, and whether or not it is right for you.
What are the options?
Options are a powerful trading tool. They can be tricky to understand, which is why most people do not use them as their own style of investing. That said, there are many ways to use option strategies in finance.
Options exist to give you some more efficient ways to invest. By using an options strategy, your investment does not have to be in the stock market. You can instead buy or sell a contract (the number of shares in a company) that is not owned by the investor yet. This is called putting in bearish or bullish positions, depending on whether the position is buying or selling a share type.
The price at which you would want to purchase or sell this contract is determined when creating the option. This price is referred to as the exercise price. At this point, you will get either one share of the stock paid for free or a refund if you choose to let the option expire without being exercised.
What is a derivative?
A derivative is an asset or service that derives its value from something else. For example, you can buy Coca-Cola stock because you believe they will make money and be successful in the future.
A derivative is like a bond that pays off depending on something happening to the underlying product. In this case, the “something” happens when the company makes enough money so it gives away instead of buying more equipment or marketing materials.
The seller of the derivative gets paid no matter what the company does, just by owning the contract. So their income is not dependent on whether or not they produce a good product!
This type of financial instrument was very popular during the 1990s bull market, where investors wanted exposure to the markets but did not want all 100 million shares of Company X owned. They hired someone to finance the share purchases for them, creating a derivative position.
Derivatives have become more common since then as people invest in ever growing companies and strategies. Technology stocks are a classic way to use derivatives. An investor might pay someone to hold Amazon stock for them until the price goes up. The person holding the stock earns a fee for services every time Amazon releases news about how well they are doing.
Another famous derivative is the credit default swap (CDS). These contracts reward the buyer if there is trouble paying interest or principal on a loan.
What are the differences between futures and forwards?
Futures, or forward contracts, are agreements to buy or sell an asset (say, oil) at a set price in the future. For example, if you want to bet that the price of oil will go up, you can invest in a futures contract for one ton of crude oil, which you can then trade with other traders to reduce your investment risk.
Futures come with a second part: the settlement date. When the contract expires, whoever holds it must either purchase or sale the underlying product according to the terms of the contract. The buyer pays the difference between the two prices, while the seller receives the lower price!
The payoff is the same, but the timing is different-the trader who bets on the rise in energy costs gets his money back and some extra cash because the settlement happens in the future. This means that he doesn’t need to hold onto the fuel for as long, reducing his cost.
Another key distinction: even though both futures and forwards have expiration dates, they are not necessarily simultaneous. A futures contract may expire six months from now, whereas a forward contract usually goes through the process all at once.
What is the CFTC?
The other main regulator of securities brokers is the federal government. This agency is called the Commodity Futures Trading Commission (CFTC). Like with SEC regulation, there are both civil and criminal penalties for broker-traders who violate regulations or cheat investors.
The CFTC was established in 1973 to regulate all commodity futures and options markets. A “commodity” is defined as anything that is traded for use outside the market system – sugar, gasoline, you name it!
By regulating these products as commodities, the CFTC has broader authority than just trading futures. For example, they can oversee binary options trading, which we discuss in more detail later in this article.
Since its founding, the CFTC has also faced criticism for not doing enough to protect investor interests. In fact, a lawsuit filed against them accused them of being too lax during the 2008 financial crisis!
Fortunately, things have improved over time. Since then, the CFTC has made efforts to be more active and visible in protecting investor interest. They now hold annual open meetings where anyone may attend and ask questions about what their department is working on.
Their website also features information about different types of fraud related to investment advice and practices. These resources aim to help educate the public on how to identify misconduct and prevent it from happening to you.
What is the SEC?
The Securities Exchange Commission (SEC) was established in 1934 to ensure that markets work by protecting investors, ensuring fair competition, and operating regulation-free for the good health of the market.
The agency has three main jobs: to make sure investor money is protected; to prevent fraud or illegal activity related to investing, and to regulate how investment companies operate.
By requiring public disclosure of information, the SEC helps keep investors informed of what is happening in the marketplace. Without this requirement, people would have no way to know if an investment company is honest, whether or not products are being sold responsibly and at cost, and whether or not profits are being reaped through unfair practices.
With its strong track record and reputation as one of the most powerful regulatory agencies out there, the SEC still receives criticism from time to time. This criticism may come from outside sources looking to discredit it or the agency’s individual staff members, but more often than not it comes down to something like “the agency could do their job better/more efficiently.
What are some of the differences between the two?
Recently, there has been a lot of talk about whether or not it is okay to use automated software to help you invest in stocks. Some people argue that such strategies are illegal investment options because they can result in large losses for your portfolio.
This is false! It is totally fine to use computer programs to find stock picks for investing. In fact, using automatic trading tools is an excellent way to get into investing.
The term “automatic” refers to algorithms that computers create to make decisions. These systems are very clever at finding trends in market data and then making smart trades based on those trends.
Automatic traders have things like nameplates, stop-losses, and position sizes set up before buying or selling so that the system does the hard work for them. Once everything is ready, the system goes to work. You can watch the markets on all time scales through different computer screens while the tool works.
There are many types of automatic trading strategies
You may have heard of one type of strategy referred to as option brokering. This is where someone buys or sells an option (a contract that comes with specific benefits depending on if it will be exercised or not) and takes their profit at the end of the option’s life.
Brokers do this by offering premium contracts that increase in price over the lifespan of the option.
What is a broker?
A broker is an individual or company that has access to other individuals’ or companies’ money to invest it for them. The broker earns their living investing your money in products, stocks, or currencies you choose by making a percentage off of what they make with each investment.
The difference between a discretionary stockbroker and non-discretionary ones is that discretionary brokers are paid to recommend certain investments over others. Non-discretionary brokers are paid a set fee per transaction; therefore, they have to find alternative ways to make up for the lost income.
Because option brokers do not get compensated for recommending specific options strategies, people have created their own! These are called “strategies” because they create themselves through repetition.
A common options trading strategy is buying or writing calls (options that generate revenue when exercised) on underlying stocks. This tactic usually begins with identifying an undervalued stock that looks attractive. Then, the writer option is purchased at a slightly higher price than the strike price, creating a position where the buyer gets profit if and when the stock is exercised.
This article will discuss some important points about options trading as well as some warnings. But first, let us talk about why binary options traders should be careful.
What are some of the things to look for when choosing a broker?
Like any other profession, there is an initial level that everyone must go through before they can call themselves professionals. For those new to investing, being able to find a good stockbroker is one such thing.
There are many different types of brokers out there, so it is important to know what each one offers. Some only offer limited services while others have more extensive offerings depending on how much money you invest in them.
It is also very helpful if a broker has lots of testimonials from past clients which speak about their quality service. Make sure to check these thoroughly as well as whether or not they are written by people who you think would be happy with their service.
