Index Options and ETF Options both provide you with an opportunity to use options strategies on a group of underlying stocks. However, there are some major difference between the Index Options and the ETF Options.

The most important difference is that Index Options are cash settled on expiry while the ETF Options are settled with the underlying instruments that is shares of that ETF. Since with an ETF Options, you can also own the underlying security, you can use various combination strategies.

Stocks have dividends that are paid out periodically to the stock holders. Dividends are an important part of the return that a stock gives over a certain period of time. Now when you are trading index options or ETF options both of them get affected by the dividend payments on the underlying stocks. You need to take this fact into account when calculating the values of puts and calls with an Options Calculator otherwise your investment returns may not be what you have been anticipating.

If you have traded stock options before, trading ETF Options should not be difficult for you. As said before, since ETF Options get settled with ETF shares, you can use the different options trading strategies on them unlike the Index Options that get settled in cash. This makes ETF Options a much superior instrument as compared to Index Options.

Now when trading ETF Options, you can use the famous Protective Put Strategy by combining long ETF with a long put. This way you can hedge against the downside risk with a small increased cost to the ETF. A Protective Put will limit the downside risk to the put strike price.

Similarly, you can use a Covered Call on ETF. A Covered Call is formed by taking combining long ETF with a short call on that ETF. The short call will give you some income in the shape of a premium and reduce the cost of the position. This will also slightly reduce the risk of the position. But on the other hand, a covered call will limit the upside profit potential. Your max profit now will only be limited to the call strike price.

Now, you can also use a Collared Position as well by combining a long ETF with a long put and a short call. This combination limits the downside risk to the put strike price with a slight increase in the cost of the ETF. This net increase in cost by taking a long put is offset with the premium brought in by the short call. On the other hand, the limited but high risk is turned into limited risk only.

What you need to do is first paper trade these strategies and master them. This way you will learn how to deal with unexpected risk. Options trading is risky in the sense that it has both time volatility as well as price volatility. Now, many traders trade options without getting good options trading education.

ETF options are always American Style meaning you can exercise them any time before the expiry. You can even use LEAP Options on ETFs. LEAP Options are long term options having expiry ranging from nine months to 21/2 years. Now just like stocks, not all ETF have options available for trading.

Mr. Ahmad Hassam has done Masters from Harvard University. Read this 49 page Quantum Swing Trading FREE Report. Get this 40 page shocking FRWC Brutal Truth FREE Report that exposed everything about trading robots!

Tweet This Post

Technorati Tags: credit, day trading, debt, etfs, futures, home business, investing, mutual funds, options, options on futures, personal finance, real estate, retirement, small business, stocks, trading, wealth building

A trading system might consist of a few indicators and a number of rules that tell when to enter the trade and when to exit the trade. Trading system is considered to be proven and tested if there is some date that supports its performance under live market trading conditions. However, it might not be possible to test a trading system quickly under live trading conditions. To overcome such problems, backtesting has been developed. Backtesting is done with the use of a software.

For this you can do back testing. Back testing is a method that uses historical data to test how well your indicators work in a particular market. You can use back testing software that enables you to look at the past market data and test how well the indicators and your trading system have worked in the past market.

Backtesting results are no guarantee that the trading system will perform well under live market conditions. Things that worked in the past might not work now. Similarly something that didn’t work in the past, may work now! You never know!There are many problems with historical data. There is no slippage in backtesting. Slippage is one of the most important problem that a trader faces while trading live. The other problem that the backtest ignores is the widening of spreads under volatile market conditions.

In other words, no two trades work out in exact the same way twice. SO you have to be careful when looking at the back testing results and take it with a pinch of salt. However, there are still some advantages of back testing a trading system.

Some markets are highly seasonal. For example, if you are a commodity trader and tend to trade agricultural commodities like the grain, seed or the livestock, these have a fixed planting and harvesting cycles.

For example, some markets especially the commodities market is highly seasonal and cyclical in nature. We can take the example of agricultural commodities like wheat, grains,corn, cotton, coffee and stuff like that. In case of the stock market, there is much talk of the January Effect. Well, it is there no doubt about it. Some years, it is highly pronounced and others it is not that pronounced. Similarly stock prices tend to rise at the end of each month and the first few days of the new months. The reason for this is that many institutional investors tend to put the new funds to work at the end of the month and the beginning of the new month! Now in other markets, you might not find any seasonal trends. For example, there is very little seasonality in curreny market or the bond market.

US Dollar Index trendlines might last for months to years. In other markets too backtesting can help you figure out important trends that lasts for last times. Backtesting can help you figure out how long a trend might last in a particular market.

There is no substitute for live trading results! To tell you the truth, backtesting can only give you a rough guess about the performance of the trading system under live trading conditions.

Mr. Ahmad Hassam has done Masters from Harvard University. Download these Forex Scalping Cheatsheets FREE! Read this shocking FREE 40 page PDF FRWC Brutal Truth Report that exposes everything about trading robots!

Tweet This Post

Technorati Tags: credit, currency trading, day trading, debt, forex, futures, home business, money, mutual funds, options, options on futures, real estate, retirement, stock market, stocks, trading, wealth building

The European Union consists of 15 member countries that include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom.

Only 12 common currency countries out of these above 15 countries constitute the European Monetary Union (EMU). These 12 countries share a single monetary policy dictated by the European Central Bank (ECB). All these above countries share the common currency Euro except Denmark, Sweden and United Kingdom.

EMU has a highly developed and efficient fixed income, equity and the futures market. The EMU is the worlds second largest economic powerhouse after the United States. This makes EMU the second most attractive investment market for domestic and international investors.

US assets have had solid returns historically. United States absorbs something like 70% of the total foreign savings as a result. In the past, the EMU had difficulty in attracting foreign direct investment or large capital inflows. The primary reason was the United States. The present global financial crisis has hurt the US and EU economies deeply. It is expected that a major restructuring of the global financial system will take place eventually that makes EMU far more attractive.

However, with the EMU beginning to incorporate even more members in Eastern Europe, Euros importance is expected to increase. Induction of new members will further increase the size of EMU. The capital flows to Europe is expected to increase as well.

With foreign central banks expected to diversify their Euro reserve holdings even further, demand for Euro is expected to continue rising. EMU is in fact a trade driven and a capital flow driven economy. Trade is very important to the national economies within EMU.

EU exports comprise almost 20% of the world trade. While EU accounts for only 17% of the world imports! Because of the size of the EMUs trade with the rest of the world, it has significant power in the international trade arena. Unlike United States, EMU does not have large trade deficit or surplus.

Both EU and the United States are two very important members of the World Trade organization (WTO). United States is the largest trading partner of EU. The formation of EU allows individual member countries to group as one entity and negotiates on an equal playing field with the United States. International clout is one of the primary reasons in the formation of EU.

Leading export markets for EU are the United States, Switzerland, Japan, Poland and China. Leading import sources for EU are United States, Japan, China, Switzerland and Russia.

Large numbers of EU based companies concentrate their research, design, innovation and marketing part of the activity in EU while outsourcing most of their manufacturing to Asia. EU is primarily a service oriented economy. Services account for more than 70% of the EU economy while manufacturing, mining and utilities account for around 20% of the EU economy.

It is important for most of the countries to hold large amounts of reserve currencies to reduce exchange rate risk and transaction costs. Most international trade transactions involve the British Pound, the Japanese Yen and the US Dollar.

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

Tweet This Post

Technorati Tags: business, credit, day trading, debt, finance, forex, futures, investing, mutual funds, options, options on futures, retirement, stocks, trading, wealth

As a forex trader you should always watch the news especially if you are trading Euro cross then any news or announcement relating to ECB. ECB publishes monthly bulletin detailing analysis of economic conditions. This bulletin can give important signals to changes in the monetary policy. Forex market participants widely watch the comments by the members of the Governing Council of ECB. These comments frequently tend to move the Euro.

All major euro crosses are highly liquid. Now EUR/USD cross is the most liquid currency. The movements of EUR/USD currency pair are used as the primary gauge to judge the health of both European and the United States health. Euro is also known as the anti-dollar since it is the dollar fundamentals that have dictated the movements in the EUR/USD pair from 2003-2008.

EUR/JPY and EUR/CHF are very liquid pairs too and are used to judge the health of the Japanese and Swiss economies. EUR/USD and EUR/GBP are great trading currencies as they have tight spreads, make orderly moves and rarely gap.

Euro is still a new currency. It was launched in 1999. Euro has unique risks. There are number of risks unique to the Euro. The most important is the exposure to the economic, political and social development of 15 member countries in the EU.

Although more countries are expected to join EMU, however, if a member country drops Euro and reverts back to its original national currency because it believes that ECB actions are not in its best interests, it could affect the stability of the entire region.

ECB has the power to determine monetary policy for its 15 member countries. However, we can say Euro is a currency without a country. With that comes the political pressure of 15 governments. This political pressure frequently tests the actions of ECB.

The present global financial crisis is unlike any in the past. However, the rapid response of ECB to the present global financial crisis in the shape of deep liquidity injections has transformed its reputation. The spread between 10 year US Treasuries and 10 year bunds can indicate Euro sentiment.

Another important interest rate that you must know as a forex trader is the Euro Interbank Offer Rate (Euribor). This is the rate offered from one large bank to another on interbank term deposits. Traders and investors tend to compare the Euribor futures rate with the Eurodollars futures rate.

Lower spreads make the European assets less attractive. Higher spreads between the two rates makes the European fixed income assets more attractive. Merger and Acquisition activities between US and European multinationals have important implications for EUR/USD pair. Large deals if in cash have often significant short term impact on EUR/USD.

Important indicators for Euro are Harmonized Index of Consumer prices (HICP), M3, German Unemployment, Preliminary GDP that includes France, Germany and Netherlands, German Industrial Production, Individual country budget deficit. The largest countries in EMU are Germany, France and Italy. Study of the economic data of these three large countries is also important.

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading stocks and currencies. Try Strignano’s Forex Signals free. Discover a revolutionary Forex Robot Trading System!

Tweet This Post

Technorati Tags: business, credit, day trading, debt, finance, forex, futures, investing, mutual funds, options, options on futures, retirement, stocks, trading, wealth

Lets assume that you already have got a trading system that tells you where to enter the market. Now you have a trading system that tells you when to enter the market. Does this system also tell you where to get out before you enter the trade?

In other words are you taking the market conditions into account and willing to give your trade a breathing space so that you dont get whipsawed or repeatedly get stopped out. On the road to profitability, lets start by agreeing that we need stop loss exits.

Trading cost is an important factor in your trading that many traders tend to ignore. Most take it as the inevitable cost of doing business. Just dont forget, the more trades you place, more commissions or spreads you will have to pay and the higher your trading cost will be. After this agreement on having stop loss exits, we need to determine how to effectively select stop loss exits to avoid excessive stop outs.

When you talk of your trading system, you should think about its win ratio and the payoff ratio. You should want to improve on them. The best way to do this is to develop a stop loss strategy that takes into account currency market conditions. So right there you can increase your profitability if you increase the number of winning trades that is your win ratio thereby decreasing your trading cost.

There need to be a connection between you and your trading system. It truly is like having a personal relationship. Finding the right trading system can be a lengthy process. You must believe in your trading system and have a high degree of trust that it can produce consistent level of profits overtime.

But you must also understand that no trading system can be perfect and no trading system can produce 100% winning trades. If you have a trading system that isnt working for you and your win ratio and your payoff ratio dont generate a profit over time then you need to rethink your trading strategy.

When you lose a trade, it can be your trading system or it can be you yourself. Determine if it is your trading system that isnt working or is it your trading psychology that is off. Make adjustments to entry and exits. Maybe the market conditions have changed and you havent adjusted your trading system to the new market conditions.

Just keep this in mind that if you dont give your trading system a chance to work jumping constantly from one trading system to another trading system in search of a holy grail wont help you.

Divorce of any kind can be emotionally and financially expensive so proceed with caution when divorcing your trading system. The decision to divorce your trading system should be a carefully thought out one.

You ultimately will also be profitable if you feel comfortable and confident with your trading system. The primary purpose of your trading system is to make you feel comfortable and confident.

Its a team work. You will feel confident when your trading system has proven to you and you have proven to your trading system that both can work together.

Mr. Ahmad Hassam has done Masters from Harvard University. Try These 1500 Pips A Day Forex Signals From Heaven. Download Your Free 82 Page PDF Candlestick Guide!

Tweet This Post

Technorati Tags: business, commodities, credit, debt, finance, forex, futures, home business, investing, options, options on futures, real estate, stocks, trading, wealth building

Download Candlestick Guide (82 pages) free after you finish reading this article. This candlestick guide is a complementary gift for you from Options University and is comprehensive. Candlesticks have become popular in the Western trading community especially the United States in the past decade. However, candlestick charting methods had been developed by Japanese rice traders hundreds of years back.

The advent of internet has leveled the playing field for traders whether they trade stocks, futures, options, commodities, precious metals or currencies. Access to the market is now only one mouse click away.

The opening of retail trading especially in the currency markets that was previously only open to large players like big banks and corporations has been a revolution. Market information is now in most cases freely available online. Internet has made commission rates dramatically lower. The result is that a whole generation of new traders and investors want to try their luck beating the market. You can now demo trade with virtual money to develop and hone your trading skills.

Did you attend the last Steve Nison Candlestick Charting Technique webinar? Now, you should. Steve is the master of candlesticks and you can learn a lot from attending his candlestick. I am a great fan of candlesticks charting and I have seen many traders both new and professionals becoming die hard fans of candlestick charting. Why? Because candlestick charting is the best tool available. Can you beat the market? It depends if you are using the right tools.

There are many forms of charting techniques that have been developed over time. Why candlestick charting is superior to other forms of charting like the line charts, bar charts or point and figure charts? One of the best features of candlestick charting is its visual appeal and readability. You can glance at a candlestick chart and quickly gain an understanding of whats going on with the price action in the market.

You can easily spot opening and closing price of a security or currency on a candlestick chart. These price levels can be a very important area of support and resistance from day to day.

Have you ever heard names like Harami, hanging man, doji etc? Well these are the names of a few candlestick patterns. There are certain specific candlestick patterns that can help you identify when is the best time to buy, sell or wait on a trade or investment. This information can be extremely useful for short term traders like day traders and swing traders.

These candlestick patterns can be a real boon to your trading and you can combine them with other technical indicators for even more reliable results. Now in order to trade and invest effectively using candlestick charts you need to understand these candlestick patterns.

A trader needs to keep abreast of what is happening in the market. Many different types of candlestick patterns can tell you what may lie ahead in the market. Patterns appear on the candlestick charts as simple, single stick occurrences or complex multi stick formations.

This information can be highly valuable in knowing that the prevailing trend might reverse or continue. You may use the information provided by candlestick patterns to decide when to get into a trade, when to get out of a trade or even when to hang unto a trade you are already in.

Download your 82 page candlestick guide here complete with strategy flash cards all free. This is the best candlestick guide in the market and you dont need to waste your money on buying a guide because this candlestick guide is a complementary gift for you from the Options University.

Mr. Ahmad Hassam has done Masters from Harvard University. Try These 1500 Pips A Day Forex Signals From Heaven. Download Your Free 82 Page PDF Candlestick Guide! Get a totally unique version of this article from our article submission service

categories: forex,stocks,options,futures,finance,business,investing,trading,wealth building,credit,debt,commodities,real estate,home business

Tweet This Post

Technorati Tags: business, commodities, credit, debt, finance, forex, futures, home business, investing, options, options on futures, real estate, stocks, trading, wealth building