Call option valuation example23 comments
Expert option trading videos
The spread is difference between the bid price and the ask price. Playing the spread involves buying the stock at the Bid price and selling it at the Ask price. This is seen as a safe alternative to other strategies. In simple terms, leverage is the process of borrowing money to make more money. Leverage gives a trader the opportunity to increase the return on a trade without affecting the performance of the trade.
Here is an example:. Most brokerage firms will give the trader the opportunity to open a margin account usually with a minimum balance. A margin account with a brokerage firm is one where the brokerage lends the trader money to execute a trade and maximize returns. This account relies on collateral, usually in the form of cash or the value of a security.
The common strategy when trading stocks is to buy low and sell high. Selling short is the opposite. Like leverage, this strategy relies on borrowing. The trader will borrow a security and sell it. After the security declines in price, the trader will buy it and return it back to the lender. However, this strategy also has the potential for losses. A trading strategy that assumes securities that have been rising steadily in price will reverse and start to fall, and vice versa.
In opposition to trend following, a trader utilizing this strategy will buy a security that has been falling, or short one that has been rising, with the expectation that the trend will change. Playing the news is a strategy that relies on trading on news information, such as company financial information and performance. Related to this, traders that trade on momentum will buy on news information and ride a trend until it shows signs of reversal this could also work for short selling. Although fading is a risky strategy, it can be extremely rewarding.
Fading involves shorting stocks after rapid increases in price. A day trader will typically employ this strategy based on 3 criteria:. Investors are pulling out of the stock. This strategy takes a keen understanding of market data charts, trends as well as company information. Cool and Unique Jobs Check them out! Teach English in Asia. Alaska Fishing Industry Jobs. Common Strategies for Day Traders Playing the Spread The spread is difference between the bid price and the ask price. Leverage In simple terms, leverage is the process of borrowing money to make more money.
Here is an example: Now, the question is, where do traders get this extra money? Sign up for our newsletter!