All mentioned currencies have their own characteristics and personalities. The US dollar, euro, and Japanese yen are major reserve currencies held by central banks around the world, but the Japanese yen (and US dollar to some extent) are also safe-haven currencies that rise in value in times of political and economic turmoil in the world. On the other hand, currencies like the Canadian dollar, Australian dollar, New Zealand dollar, and Norwegian krone are also called commodity-linked currencies, as they heavily depend on the price of commodities such as oil and copper.
Options trading can be very complex. It may utilize multiple conditions and market prices change almost constantly during the trading day, or 24 hours per day in some markets. This makes options trading very risky compared to long-term investments in mutual funds, ETFs, or even many stocks. We recommend only getting involved with options trading if you understand what you’re doing and can tolerate the risks involved.
Risk warning: Trading Forex (foreign exchange) or CFDs (contracts for difference) on margin carries a high level of risk and may not be suitable for all investors. There is a possibility that you may sustain a loss equal to or greater than your entire investment. Therefore, you should not invest or risk money that you cannot afford to lose. Before using Admiral Markets UK Ltd, Admiral Markets AS or Admiral Markets Cyprus Ltd services, please acknowledge all of the risks associated with trading.
Reward/risk: In this example, the trader breaks even at $19 per share, or the strike price minus the $1 premium received. Below $19, the trader would lose money, as the stock would lose money, more than offsetting the $1 premium. At exactly $20, the trader would keep the full premium and hang onto the stock, too. Above $20, the gain is capped at $100. While the short call loses $100 for every dollar increase above $20, it’s totally offset by the stock’s gain, leaving the trader with the initial $100 premium received as the total profit.
Suppose a trader buys 1,000 shares of BP (BP) at $44 per share and simultaneously writes 10 call options (one contract for every 100 shares) with a strike price of $46 expiring in one month, at a cost of $0.25 per share, or $25 per contract and $250 total for the 10 contracts. The $0.25 premium reduces the cost basis on the shares to $43.75, so any drop in the underlying down to this point will be offset by the premium received from the option position, thus offering limited downside protection.
The smallest lot that is on offer by a vast number of brokers is called a Micro lot. It equals 1000 units of a currency. So if we are taking into account, for example, EUR, that micro lot will be equivalent to 1000 EUR. A 2 pip, in this case, would be worth 20 cents. It is suggested if you are new to Forex trading, that you use this type of lots. If you have more capital to invest, then Mini lot would be a far better way to make a profit. Let’s say you have a dollar-based account and are trading a dollar-based currency pair. In this instance, 1 pip is equivalent to $1. Since the market fluctuates, and pips can skyrocket or plunge, profits or losses can be far greater.
Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the U.S. or the U.K. (dealers in the U.S. and U.K. have more oversight) or in a country with lax rules and oversight. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.
Margin – To be able to trade on leverage, you need to put a small part of your trading account aside as collateral for the leveraged trade. Don’t worry, your broker does everything automatically for you. The margin will be returned to your trading account once you close your leveraged trade or it hits its exit price. The following table shows the required margin to open a trade, based on the used leverage ratio. For example, a leverage of 100:1 requires a margin of 1%.