The in past few years, online trading on the futures and options market has become ever more popular. Not all that long ago, only very wealthy people had the opportunity to trade on the exchange. Now, it is accessible to anyone who wishes, and with the appearance of binary options, it has become truly easy. However, the overwhelming majority of people on the internet don’t have any experience at all, even the most basic insight into speculating on the financial market.

Trading Tools – What Are They and How Do You Use Them?

So we decided to write this article, summarizing the main trading tools used by traders. Where we will touch upon all the available opportunities for everyday people to earn a profit on the market. The tools will be viewed in terms of earnings on the exchange, that’s why this approach has specific benefits in comparison to traditional investment. More specifically, since you can profit from price decline as well as asset capitalization growth. Your success is tied to the accuracy of the forecast.

The Main Online Trading Tools for the Futures and Options Market:

  • currency pairs on Forex;
  • binary and classic options, futures;
  • goods, assets, precious metals, raw materials.

 

Forex, An International Exchange

Currency pairs are traded on Forex. It appeared a bit before binary options, nearly at the same time as when the internet was introduced to the wider public. The principle for earning a profit is very simple. If we were to describe it in two words, they would be, buy low, sell high. Everyone is aware of the principle of speculation. However, in contrast to the workings of the usual market, on online platforms, you can earn a profit from a decline in the asset price. First, you sell a good at a high price, and then a while later, after the price falls, re-buy it in the same quantity with less of your capital. The corresponding framework becomes reality thanks to the introduction of a special type of contract with, so-called, deferred delivery of trades.

The total income from trades on Forex is directly dependent on how significantly the course of the asset price changed throughout the duration of the trade. Strong trends with dramatic price leaps are rare, so traders must earn a profit within the reality of actual market conditions. Profit is measured as a percentage of the total investment. Which is why, on Forex, so-called credit leverage is often employed, enabling you to borrow money for a trade, in the form of a loan from the broker. Whereby the coefficient can reach 1:500 or even 1:1,000. However, 1:100 is a more popular choice. Therefore, if a trader has, let’s say, $100 in their account, they can invest up to $10,000 in a trade.

The benefit of Forex is its accessibility. You can start earning right away, just register on the platform site of any broker. However, it has its drawbacks. For example, in truth, the list of trading assets is short, and also there are strict limitations on the percentage of profit per trade to price fluctuation. Binary options are free of such disadvantages. Although, this type of earning remains relevant to this day.

Futures Contracts

Before we do an overview of binary options, it is important to understand futures, because they specifically are their advantages. So, it is a type of contract between participating parties (seller and buyer), in which the terms of purchasing a specific good are outlined. The difference that sets this type of futures trade apart is the delayed delivery of the real asset. In reality, it is a security presenting itself as a virtual equivalent of some valuable asset, such as precious metals, fuel or food products.

Futures can participate in buy-sell operations an unlimited number of times, but, in the end, the final buyer will receive the real goods in an agreed upon period of time. Of course, it is applicable to actual trading platforms and exchanges. On virtual trading platforms that only exist online, you don’t receive physical goods for futures or other set-time contracts. However, that doesn’t impede market participants from successfully profiting from the resale of securities.

Futures were created by real goods manufacturers, who wanted to ensure themselves against financial losses due to force majeure circumstances. For example, a farmer who grows wheat can receive real financial means from this type of contract even before the crop is harvested. They agree in advance on the delivery of the specific volume of grain in a defined period, meaning that the advance of the funds can be put into use early, such as for purchasing equipment, paying wages, and so on.

Options on the Real Exchange

The term “option” itself, in the context of trading, means a contract with practically identical rules, previously outlined in futures. However, they have their nuances, which is why they are viewed as a separate trading tool. So, an options contract is binding on the issuing side, i.e. the seller. The buyer, in turn, is free to choose to agree to the receipt of goods (an actual delivery) or to decide against it. This right remains with them until the last moment.

Acquiring options enables both sides to insure themselves against the price decline of a specific good over time. To better understand the essence, it is worth giving an enlightening example in an industrial sphere of a real economic sector. So, let’s say, an oil refinery is planning to purchase a large batch of oil, at the current price of $50. However, in the current year, they don’t need it yet, it’s needed in a few months.

Of course, the company wants to ensure itself against a possible price increase of the raw material, therefore they acquire an option while paying the cost of both parties’ oil, but under the condition of delayed delivery. For it, the buyer proposes paying an additional percent, around, let’s say, 3% of the total cost of the raw material to the other side (supplier). These terms suit the seller, as their ready to receive their percent right away, even though the oil, which will be delivered in a few months, is still underground, not yet extracted.

Time passes, the cost of oil falls to $30, and the company understands all too well, that it isn’t worth overpaying $20 per barrel. Accordingly, they decline the option, and the seller receives their pre-agreed sum as commission, in our example, 3% of the total sum of the contract. All sides retain their funds and their share of the goods. Options contracts allow both the buyer and the seller to insure themselves against risk.

Trading Goods and Raw Materials

This is the oldest and most traditional approach to the movement of goods between people. The buyer directly funds the manufacturer’s production. Both sides interested in the real delivery of raw materials with minimum legal and bureaucratic formalities. That is the purpose of commodity exchanges. First and foremost, only select industrial spheres are traded, such as, to start with, foodstuff (wheat, sugar, milk, meat and so on). Second, pharmaceuticals, and third, technology and various equipment, necessary for implementing actual production.

Trading real goods, in most cases, has a seasonal character in connection with agricultural work.

Therefore, classic contracts are used with fixed terms of delivery, scheduled as close to the date of payment as possible. Both sides are involved in the real industrial sector, therefore the profit from speculating on the multiple re-sales of futures and options doesn’t peak their interest. On the contrary, they are interested in retaining a stable price for the good.

The situation is somewhat different with raw materials. To begin with, this type of asset was traded in the same manner as goods. However, later, due to the high volatility of the market and the swift, pronounced price changes in that sphere, traders turned to speculation. This lead to the conditional separation of single assets into speculative tools, such as oil, gas, common and precious metals.

These days, there is a distinct class of traders on the market, who solely speculate on the resale of raw materials. Of course, they never hold the purchase till actual delivery, as that doesn’t interest them. Traders earn their profit of the resale of futures and options contracts and prices moving in different directions.

Company Assets

Investing in a desirable company is a traditional way for individuals with spare capital to earn additional income. The special aspect of this type of security is that it enables shareholders to receive proportional control over the management of the company. Of course, the level of authority received depends directly on the percentage of the shareholder’s portion of the total capital of the company. The final say is given to the holder of the so-called “controlling share”, i.e. the largest share.

This nuance has led to a decrease in the number of asset shares in free circulation on the market. Hence, investors don’t exclusively consider this type of security as a liquid market product, enabling them to profit off financial investments, but also as an arm, which allows them to change the form of ownership and “balance of power” within a specific company. However, on the open market to this day, there are assets available for the majority of companies, including the largest transnational corporations. From the point of view of a trader, this type of asset is a very promising avenue to pursue.

Binary Options

This term refers to an option contract, which differs based on its fixed conditions on every point, including its cost. In terms of earning a profit on the internet, you could say that trading options are different since every trade has a predetermined fixed amount of profit or loss. At the start of the article, when discussing profits on Forex, we mentioned that trading income is defined by a several points, which the price passes through from the moment the operation has begun. The situation with binary options is different, in this case, that moment isn’t of any particular meaning. For profitable trade expirations, all you need is one point, but it absolutely must be in the correct direction.

The percentage of profit per option is around 70–90%. In turn, the loss totals 100%, because if the forecast doesn’t come to fruition, then the investment isn’t returned. In conjunction with that, quite a few brokers recommend their clients loss compensation from around 5% to 25% of the loss. When trading with binary options, there is a clear distinction between the risk and possible profit. On Forex, it is completely realistic to lose an entire deposit in one trading operation, if no stop loss was put into place in the beginning, which automatically closes trades upon hitting pre-determined loss. On options platforms, this situation is impossible. The trader analyzes early, at the stage of opening a trade, the possible outcomes, and aren’t altogether that many, either it is profitable, or they take a loss.

Conclusion

We have gone through several of the main types of trading tools. However, the best variant out of them is binary options in particular. They lack some of the common disadvantages which exist with Forex, yet preserve the established traditions. Currently, the market offers brokers a wide selection with desirable trading conditions. You can start earning a profit with minimal deposits, however, you can learn how to trade and practice without any financial risk at all if you open a demo trading account.

 

TRY CRYPTOCURRENCY TRADING ON BINARY OPTIONS

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

What Are Trading Tools and How To Use Them?
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