What Is Options Trading Meant For
Many people might wonder, “What is options trading?”, It is not as complicated and exhausting a task as it many preconceive it as. Options trading seems mysterious to a great amount of people because vast majority of day traders have no idea what it really consists of.
Options allow the one who holds them the ability to legally purchase or sell them for a certain price at a specific date. When choosing a specific date and buying or selling on that date, this move is called a European option. Whereas buying and selling at a time before the chosen date is called a US option.
Stock options and future options are two categories that are rolled into this type of exchange. Both have similarities and differences. While both of these give rights for sales and purchases, they differ somewhat. General stocks give the lawful right to sell or buy whenever one wants, while future exchanges have a mandatory sale attached to their name.
The worldwide stock market has several different types of stock exchanges, there are those called European or US. European stocks happen to be fully cash settled like those that are ODAX, OSMI, and ESX. These markets are various European leaders in the stock indexes. The US types are a mix of future and cash traded stocks. There is only one cash settled stock in the United States and it is based on the stock index of the Chicago Board of Trade.
A part of this type of exchange is the negotiation of contracts. This kind of trade involves selling their contracts which detail the date on which the option will close or expire, the price of the commodity, and the type of security. Many people make money by trading these contracts and keeping the difference between the bought and sold price of the trade. Sometimes the option is only traded for the commodity that it is worth and in this manner it is sold just like a future contract, by buying and selling the right to the commodity.
The SEC, of the securities and exchange commission of the United States, heavily regulates the types of stocks that can be traded within the borders of the United States. Both European and US stocks and dealt in futures or immediate currency. While the future options are changed to contracts to be traded, the cash stocks are bought and sold. The US only has two future stock options and the SEC restricts the trade of all cash stocks.
The characteristics to recognize these stocks by and understand them are those that every day trader would understand. One part is the trading symbol, usually consisting of several letters as an abbreviation of something recognizable. The second part is the date of expiration usually consisting of the month and year the item expires. The third is the right to buy or sell and the price by which it can be bought or sold.
Those who previously wondered, “What is options trading”, can rest assured that it is not a complicated subject matter. People who are already familiar with some stock exchanges can do some research online or in their local bookstore to better familiarize themselves with stock trade in today’s market.
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