Stock Futures and Options
Trading futures and stock options can offer big returns with very little money downFutures trading and stock options trading offer a major advantage known as leverage. Say you have $5,000 dollars to invest. You could buy shares of a company, or you could buy stock options on that very same company. Each option gives you control of 100 shares. So with that $5,000, you can buy 10 options of a stock thats selling at $50, which amounts to 1,000 shares.
Stock futures contracts control the same amount of shares as options: 100 shares per single stock future. However, when trading futures, you usually only have to make a deposit of 20 percent. The deposit is to open the position and this is called initial margin. The power of leverage is how this is all possible. With a small amount of money, you can control a larger stake. This larger stake allows your potential profit to be much higher then if you only bought the stock outright.
In this guide to stock futures and options, you’ll learn:
- Where to find educational tools to help you master futures trading and options trading.
- Where to paper trade before you actually begin trading futures and options with real money.
- Where to open an account to begin trading stock options and futures.
Educate yourself about stock options trading and futures trading
Practice trading futures and optionsPaper trading and practice accounts are a great way to get your feet wet in either the options or single stock futures market. Online futures sites even have practice trading accounts available to try before you place any real money on the line.
Open a stock options trading accountStock options trading is offered by most brokers. If you have a broker, you can usually upgrade your account by signing a few forms and placing your account on margin. If you prefer to find a new broker for trading stock options so you don't mix your current stock portfolio with your options portfolio, there are many online brokers to fit your needs.
Open an online futures accountMany brokers offer single stock futures as well as stocks and other investment instruments.
- The biggest difference between stock options and single stock futures is that you have to trade single stock futures on margin.
- Always remember that stock options are a wasting asset. Options expire, and if the strike price is never reached, they can become worthless.
- With stock options trading, current stock price, strike price and expiration date are what you have to keep in mind.
- Single stock futures do not have a strike price. Stock futures are more straightforward and require only making a decision on the movement of a stock.
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