Financial Market Trading: Decoding SPOT Options

by Pam on April 13, 2017

“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham.

Are you interested in trading on the global financial markets? If so, have you considered trading in options, or more specifically, SPOT options? What are SPOT options, and how can you place successful trades utilizing the SPOT option vehicle?

Defining SPOT options

Single Payment Options Trading (SPOT) is a “type of option product that allows an investor to set not only the conditions that need to be met in order to receive a desired pay-out, but also the size of the pay-out he or she wishes to receive if the conditions are met.” In other words, this option is similar to a binary option in that you have one of two choices when placing a trade, and there will only be two results, one which is correct, and the other is incorrect.

Here are a couple of facts that pertain to options trading and how to invest successfully utilizing the SPOT options trading vehicle:

Trade on the price movements of assets

The biggest difference between options trading and traditional stock market investing is that when trading in options, you do not buy and sell shares or stock, you trade on the price movements of the underlying asset. For example, let’s say that Google is currently doing very well on the global financial markets and you wish to capitalise on its successes. However, you are not interested in buying and selling shares in the company.

An alternative investment strategy is to trade on Google’s price movement. If you think that the price will continue to increase within a certain timeframe, then you place a trade accordingly. If you are correct, you are in the money; however, if the price moves in the opposite direction, then you are out of the money.

Options trading is not guesswork

Many people assume that, because of the nature of options trading that it is similar to gambling. After all, all you need to do is guess whether the price of an asset will move up or down. This assertion could not be further from the truth. Yes, you need to determine which way the price of an underlying asset will move; however, you cannot just guess.

When it comes to investing, it is vital that you educate yourself. You need to do the necessary research, study and analysis before making any investment decisions; otherwise, you run the risk of making the wrong decisions and losing your initial investment.

Sign up with a reliable, reputable broker

It is critical that you do your homework and research thoroughly to determine which online trading broker will best suit your needs. Companies such as Lionexo have made it their mission to help their clients transition into highly successful traders.

Because of the current global ease of access to the internet, it is much easier for hackers to set up false companies to scam unwitting traders out of their entire investment. Therefore, it is advisable that you read up on the different brokers before you sign up with a particular trading partner.

SPOT options trading can be high risk

Any discussion on the merits and function of options trading would be incomplete without noting that trading in options is a relatively high-risk venture. However, this does not mean that you must avoid utilising this investment tool. You need to mitigate the risk by ensuring that you are well-educated in the art and science of trading in binary options.

The easiest and most successful way to educate yourself is to study all the materials in your chosen broker’s education centre. A reputable agent will have a comprehensive education centre including a trading academy, advanced training materials, and a demo platform where you can practice your trading skills before you transition onto the online platform.

Determining a trading strategy

Most investors utilize one of three strategies when trading in options: a short-, medium, or long-term trading strategy. Your trading strategy will influence to a large extent by the current financial market volatility. For example, because the market conditions are reasonably volatile at the moment, it is better to consider a short-term strategy, such as day-trading. In essence, if you are a day-trader, all of your trades will have expired before the close of business every day. In this way, you are mitigating the risk of sudden, unexpected market changes that might occur overnight.

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