Trading forex is just another product to trade financial markets and is extremely popular due to its simplicity. A trader should choose the financial instrument to be traded (currency pair, stock index, commodities, a specific stock chart, etc.), the direction (up, down, sideways), set the expiration date and just wait for the option to expire in order to see if it is profitable or not
Online Forex Trading for Beginners
Can I sell an option?
No, options can only be bought. If you think the price is going to move to the upside, you have to buy a call option. On the other hand, if you think the price is going to move to the downside, then you should buy a put option.
When is an option profitable?
An option makes a profit when it expires ITM (In The Money). This means that in the case of a call option, if the price at the expiration date is bigger than the striking price (the price you bought the option at), then the option is being said to expire in the money and a profit is being made. The same is true if after buying a put option and at the expiration date price is lower than the striking price (the price you bought the option at), the option is said to expire in the money.
What is a high/low option?
There are many types of options and the most popular ones are the high/low options.
- Under these options, all a trader has to do is to pick the direction (high or low) and trade call or put options with a specific expiration date.
- If at the expiration date the price of a call option is higher than the striking price, a profit has been made.
- On the other hand, if the price of a put option is lower than the striking price at the expiration date, the option is a profitable one.
Are forex bonuses recommended?
Option brokers offer welcome bonuses based on the amount that is deposited and can go up to a specific sum. Before accepting the bonus a trader must clearly read and understand the conditions for clearing the bonus as this comes most of the times with a specific trading volume that must be done before any withdrawal can be processed. We don`t reccoment to accept these bonuses!
Should the forex broker be regulated or not?
Trading with a regulated broker is always better than otherwise. Regulation refers to the fact that the broker is under the supervision of a financial authority and in the case something is happening with it, the financial authority steps in to make sure traders do not suffer. If you want, it is like having an insurance that the broker you are trading with is the right partner for your trading activity.
Should I trade short term or long term expiration dates?
The answer to this question comes from the type of analysis one is using before taking a trade. Short term expiration dates range from sixty seconds to one hour, and they are the result of either fundamental analysis (interpreting economic releases in order to have an idea where price will go) or technical analysis (forecasting future prices based on patterns that formed in the past) made on lower time frames (one minute chart up to the five minutes chart). On the other hand, if the analysis comes from bigger time frames, like daily charts or four hours charts, expiration dates should be bigger, starting with the end of day end ending with the end of the week or even month.
Do I have to wait 30 Days for an end of month option to expire?
No. It depends on very much when the option is being traded. If you trade the option, say, on the 16th of the month, then you’ll have to wait only two weeks for the option to expire and see if it is in the money (made a profit) or out of the money (made a loss). If you trade the option just three days before the end of the month, then the waiting time is just that: three days.
What financial products to trade?
The most popular financial products for fx trading re the currency pairs. They represent the vast majority of products offered for fx trading at every options broker. Beside currency pairs, commodities like gold, oil, silver, platinum, cotton, etc. or indexes like DJIA (Dow Jones Industrial Average), SPX (S&P500), DAX (German index, etc.) are common as well.
What is the rate of return of Online Forex Trading?
This depends very much on the type of the option traded and the expiration date, as well as on the broker itself and the financial product offered. The typical rate of return can range for as low as 65% to as high as 80% or more for each option that is traded.
Can I close an option ahead of its expiration?
Yes, you can. However, the rate of return will be smaller than in the case the option is being left to expire. As a rule of thumb, the more the option is approaching its expiration date, the more you’ll be rewarded if you close the option earlier. This possibility tests the trader to the limit as booking earlier profits will always be more tempting than actually sitting on your hands until the option expires.
Why should I use long term expiration dates for Online Forex Trading?
Currency pairs tend to be extremely volatile and in order to be on the right side of the market sometimes it is wiser to skip possible fake moves. The only way to do that is to trade with a longer time horizon and in this way fake moves can be avoided. For example, the NFP (Non-Farm Payrolls) in the United States is one of the most important economic releases. Currency pairs make wild moves on the day the NFP is released. What a trader should now is that the NFP is released on the first Friday of each and every fx trading month, and in order to avoid the volatility surrounding the event, o wise move would be to trade with end of day expiration date, one week or even end of month. This way possible fake moves can be avoided.
What other types of forex products are there?
Depending on the broker, there are multiple types of options other than the high/low ones. One touch is a popular option and the idea behind it is to set a specific price or target to be touched in a specific amount of time (expiration date). If this is happening, the option is a profitable one, and the profit will be credited to the fx trading account instantly, even before the expiration date if the level was touched earlier. If on the other hand time expires and that level is not reached, the option expires out of the money, and the invested amount is lost.
- This type of option is recommended when a ranging environment is expected, like the Asian sessions, when price action is really slow.
- Some brokers even let you build your own option, in the sense that you can choose the product to be traded, chose whatever the expiration date you want, and even the rate of return.
- This way all factors are being priced in and it all depends on the accuracy of the analysis that lead to the decision to trade the option.
Is Online Forex Trading Profitable?
Fx trading forums or chats are very good information sources regarding a broker or a trading signal provider as people share their experiences and through those experiences an idea about options in general and forex signals providers can be made.
Additional costs for Forex trading online
If the signal provider asks for a monthly fee for the signals, then there should be no additional costs associated with receiving the signal. Some providers will push for selling some other software or make you open a fx trading account with specific brokers, and this should be taken with a grain of salt. Make sure you ask sufficient questions and have the right answers before accepting any other additional cost.
This should be publicly available and serious signal providers will always have performance listed on the homepage of their website. Any serious trader will know in advance that in trading there is no holy grail or recipe for winning one hundred percent of the times.
To trade forex is a tough business and it is normal to have drawdown periods from time to time or even a losing streak. What is important is for the account to grow on the medium term and therefore one should look at the overall performance the signal provider is having, not the fact that is having a few bad months.
Having said that, a signal provider that advertise only winning trades as the overall performance should be avoided as well. That is not accurate information!
Therefore, look to subscribe not for one month or two, but have in mind a longer time perspective for testing some services.
Trading sessions covered
Online fx trading has the major advantage that it addresses virtually to anyone that has an Internet connection, no matter where that person actually lives. This is very important because if you’re living in Australia but the signal provider is active during the London session, you might miss a lot of fx trading signals. The way to go is to find out when the bulk of the signals are being transmitted and if you can follow them based on your location.
How the signal is transmitted?
This is a very important thing to know from your signal provider as it may require some additional steps to follow from your end. The classical way to receive fx trading signals is per email but this can be done via other communication tools like Twitter accounts, Facebook instant messaging, or SMS.
Some signal providers require a trader to log in to other software that needs to be downloaded. If that is the case, make
sure that is not an additional cost to be paid.
In order to be able to follow forex signals, expiration dates that are going to be used are important. First of all, it is impossible to follow short-term expiration dates as simply one may not have the necessary time to do it.nSecond, make sure that expiration date is offered by your options provider, not to mention the financial product.
Are automated systems good?
As mentioned at the start of this article, options industry took the forex model industry and adapted to it very fast. Automated trading is well-defined in the forex trading industry and options one started to adapt it as well and can be a good addition to a forex trading strategy.
- An automated trading system implies that positions are being taken by a robot or Expert Advisor as it is also being called. This allows for trades to be opened when specific market conditions are met.
- In the world of options there are some options signal providers that offer the possibility to trade with robots and all you have to do is to open a trading account with the brokers listed by the signal provider, download the software and you’re good to go.
- There are usually different risk levels that one may choose from, something like aggressive, conservative, moderate, etc., and the value of an investment can be set as well.
- In most of the cases these systems also let you chose the other side of the trade when compared with the actual signal that is generated. This is just to proof that there is no scam and in reality a trader is able to trade on its own as well.
- Automated forex trading systems are good in the sense that trades are being taken without the trader having to take any other additional step.
The problem that arises here comes from a profitability point of view. While it is simple to advertise this kind of programs, it is very difficult to maintain a profitable line due to the various expiration dates used and because, on top of what forex trading implies, forex trading needs to take the time element into account as well.
The best way to trade with forex signals
The tone of this article so far left little or no positives for using a options signal provider and the reason for that comes from the fact that this industry is subject to many scams.
Therefore, one needs to be really skeptical about anything he/she reads or learns about a broker or trading signal provider, etc., as just because some information is written somewhere doesn’t mean it is true.
Providing one does have a good broker to trade with and is interested in trading via forex signals, the best way to do this is to hedge your trading account with trades taken from various signal providers.
The way to do that is to have more than one signal provider, like two or three or maybe even more, and let the trading account take those signals. The idea behind this approach is that this way the trading account is partially hedged in the sense that the signal providers are supposed to be traders that do take into account either technical or fundamental analysis.
- In other words, it is difficult for all of them to be on the wrong side of the market, but possible for all of them at some moment of time to be on the right side of the market.
- This way, when things are tough the account is fully hedged or partially hedged and not much of loss is incurred, but when things align in the same direction of the market, profits can be made.
- The key here is for the proceeds from this approach to cover the trading signals provider’s costs and some profits to be left for withdrawing purposes. After all, what is the purpose of trading financial markets if not for a profit?
- If a profit is not being made, then the trader should simply do something else or trade on his/her own.
Other things to consider for Online Forex Trading
So far we covered pretty much everything that was supposed to be known regarding options signal providers and respecting the steps above one will have a good chance to find a good signal provider as well as a good chance to make a profit.
On top of what was mentioned so far in this article, other things may be useful to consider, like the following:
- Sales push. If a broker or a trading signal provider is trying to push a sale, this is not a good sign, especially if this is made in an aggressive way.
- Avoid bonuses. Options brokers are working with providers as well and it is common that a welcome bonus is credited to any new client. Make sure you read and understand the conditions to clear such a bonus as they are really difficult to fulfill. Usually, to clear a bonus one needs to trade a tremendous volume and sometimes brokers will not allow clients to withdraw any amount (including the one deposited) until that trading volume is done. Conditions are intentionally set so high that in the end, the trader will lose most of the funds on top of the bonus received. If the options signal provider asks you to open an account with a specific broker, make sure you avoid any welcome bonus.
- Ignore signal providers that advertise only profitable trades and easy money to be made.
To sum up, trading with forex signals can be profitable if one knows what to look for and understands the overall business. Rookie mistakes and scams can be avoided and trading with a forex signals provider should be the outcome of a due diligence process that considers both the advantages and the disadvantages of this line of business. Respecting the points mentioned here are key for successfully trading options with a signal provider.
How do I know when/what economic data is released? Very simple. Just go over the Internet and search for the economic calendar. This information is for free and gives the economic releases on each and every trading day, week, month, together with their importance and the forecasted value.
Using the economic calendar is a great way to avoid periods of great volatility as well as to understand how an economy is doing. It also offers the time when these releases are hitting the wires so it represents a great tool for setting the right expiration date of an option.
Is Online Forex Trading Legit?
By far, central banks are the most important ones when it comes to trading in general and to currency pairs in particular. Knowing when central banks are meeting to set the interest rate and the monetary policy for the period ahead is key to any currency and very important to any trader. As a rule of thumb, if a central bank is raising the interest rate (also called hiking), this is positive for the currency (or bullish) and call options should be traded. On the other hand, if a central bank is easing the monetary policy or cutting rates, put options for that respective currency should be traded as no one wants to own a currency that pays a lower interest rate.
What other economic releases to watch for trading forex?
Besides the NFP mentioned above, there are other releases to watch that bring a volatile environment. Here are some of them:
- CPI (Consumer Price Index) or inflation. This is key to central bankers as inflation is part of any central bank mandate. If inflation moves higher, expectations grow that the central bank will raise rates next time they meet and the currency will start appreciating.
- PMI’s (Purchasing Managers Index). These indicators refer to different sectors of an economy (manufacturing, services, construction) and are interpreted based on the 50 value. Any print above the 50 number calls for a sector that is expanding, so it’s a positive thing for the currency. The opposite is true for a PMI below 50.
- GDP (Gross Domestic Product)
- Retail Sales
- Press conferences
Why Online Forex Trading?
Options are a great way to diversify a portfolio due to the high rate of return that is being offered. Of course, that trading should be done with a sound money management plan as options trading allows a trader to put the time element to a trade. When compared with forex trading, for example, there is no stop loss when trading options: the actual stop is in time. If time expires, the option is automatically being closed. It doesn’t matter the distance traveled. All that matter is for the price to be higher in the case of a call option or lower in the case of a put option, even if only by a bit. In comparison, on the forex market, setting a take profit and a stop loss is even more important than the general direction the market is moving. Moreover, the possibility of earning 70% plus or more in 60 seconds is always a great incentive for starting to trade. With the help of options trading signals service your start will be easier.
What if the price moves in the opposite direction before the expiration?
Do I still have a chance to win? Yes. The option may be out of the money for the whole time until expiration. What matters is to be in the money when time expires.
Is there a limited number of options on a financial product?
There is no such thing. The only limitation you have is being given by the balance of your trading account. As long that there are funds in the account that are not blocked in other trades, another option can be traded.
How is options trading different than forex trading?
With options trading, the only limitation comes from the expiration date. I would say it is more important to set the right expiration date than the actual direction. On the other hand, in forex trading price is limited by both take profit and stop loss.
Online Forex Trading Signals
Trading options without knowing what exactly to do is just gambling! What you need is a good options trading signal provider. This article will let you know what you have to look for and also help you to make the right decision.
The underlying financial products that make most of the options market are the currency pairs. Basically, we’re talking about the same currency pairs like in the forex market. Moreover, forex brokers and options brokers are offering the possibility to trade other instruments like commodities (gold, oil, etc.), stock indices (Dow Jones, S&P500, DAX, FTSE, etc.) as well. The idea behind the above statements is that forex trading and options trading are similar when it comes to the products offered for trading and it is no wonder that the options industry is developing based on the forex brokers models.
Why trading online with Forex?
Recent years saw online trading exploding in popularity, in line with greater Internet covering, faster connections, and the overall retail trading grew more and more by the day.
The fact that smartphones and tablets appeared, only contributed to this fast-changing environment and nowadays a trading account can be accessed either from your PC/desktop, or smartphone/tablet, etc.
With 3G available almost everywhere, a trade can be taken virtually anywhere, at any time, without much of a technological effort. However, in order to place a trade, one needs a reason for it as if there is no analysis and logic behind the trade, then trading is pure gambling.
Time is something that people do not have, as they are involved in the day to day jobs and markets are moving 24/5. This means that in order to find good entries for your trades, either you’ll trade for a living, or simply you’ll have a hard time in the trading world.
To avoid that, and keep traders close to the forex market, trading signals providers appeared. It was not long until options industry offered the same, and now a simple Internet search will see a lot of signal providers advertising their services.
How to choose a good forex provider for trading forex?
This is such a complicated question that it is very difficult to find the proper answer. The first thing to do here is to totally ignore free signals providers. After all, ask yourself the following question: why would anyone that is trading options profitably, would want to give away his/her signals for free?
- Some of this providers, while offering the signals for free, are pushing for the sale of different programs to trade with or are conditioning the trading only on some specific brokers they have an interest in and they are earning a commission on each and every trader they bring and on each and every trade the new trader takes. This is how it works!
- Such offers come in most of the cases with some associated costs, or advertising, or pushing other products for sale and are to be avoided by all means. Having said that, we’re left with options signal providers that ask for a fee for their services.
- Before subscribing to any signal provider service, there are some things to check first, and the ones below should be enough for identifying the proper one.
Search for the signal provider’s reputation and this should not come from its website. Look for some other information from other sources, like trading forums, check scam lists in order to see if the signal provider you’re interested in is listed anywhere, if yes, what is the reason for that, etc. All in all, a very solid analysis should be made in order to avoid being trapped in a scam.