May 232017
 

Trading and making a profit is a lot of fun, but it can be confusing as well. There is a lot to learn! One of the first questions you might ask yourself is, should I trade stocks? stocks vs forex vs futures vs optionsForex? Futures? Options? Something else? Part of finding the answer to that is just learning about each market, so you can choose what makes sense to you. So let’s discover more about stocks vs forex vs futures vs options.

More markets are available for trading today than ever in the history of the world. The markets aren’t just available, but public access to them is easier than ever before. So choosing among them is more complex than ever. Let’s bring a bit of clarity to the issue.

Here is a comparison of stocks vs forex vs futures vs options. Following the table, I’ll talk a bit about why you care about each of these features.

Stocks vs Options vs Futures vs Forex

 Stocks (Equities)OptionsFuturesForex
DefinitionA stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price.A futures contract is an agreement traded on an organized exchange to buy or sell assets, especially commodities or shares, at a fixed price but to be delivered and paid for later.Forex, also known as foreign exchange, FX or currency trading, is a decentralized global market where all the world's currencies trade.
ExamplesAny stock sold over any of several stock exchangesBuy or Sell Puts or CallsIndex futures such as ES, NQ, YMPairs of currencies
Any publically traded companySpreads, StraddlesCommodities such as metals, food and fiber, livestock, grains, energyEUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, USD/CAD
Ways to TradeOracle on WilshireOracle on WilshireComing soonForex Investing Live Signals
LeverageNoYesYesYes
Commissions paid to brokerYesYes, can be higherYesNo, in general. Instead you pay the "spread". The spread is the price difference between where a trader may purchase or sell the underlying asset.
RegulatedYes. The SEC has jurisdiction over stocks and all publicly-traded companie. Stock brokers and investment firms are regulated by the Financial Industry Regulatory Authority. Yes. The United States has two major government bodies regulating the financial markets: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Both organizations have a similar goal—to prevent fraud and other malpractice in the financial markets and to safeguard investor interests. Two nongovernmental self-regulatory industry organizations, the Financial Industry Regulatory Authority (FINRA) and National Futures Association (NFA), also help oversee the industry. All option contracts traded on stock/index as underlying are overseen by the SEC and FINRA whereas options contracts on forex/commodity/futures as underlying are overseen by the Commodity Futures Trading Commission and the National Futures Association.Yes. The Commodity Futures Trading Commission (CFTC) has jurisdiction to regulate the futures markets with oversight over the entire industry. Each U.S. futures exchange operates as a self-regulatory organization governing its floor brokers, traders and member firms.Not really. The foreign exchange market is by far the largest, most liquid market in the world. But despite its huge size this is a market that is far from extensively regulated and that has no single global body to police the massive 24/7 global forex market. How US Authorities Regulate Forex Brokerage Accounts: The National Futures Association (NFA) is the “premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets” (including forex).
LiquidityVaries. Options can be thinly traded, thus have low liquidity.Varies. Some, like ES, are heavily traded, and have good liquidity. Others are very thinly traded, so have low liquidity.Very High. Over $5 trillion traded per day.
TaxesYou pay long term (held over a year) or short term holding (ordinary income) taxes.Can be quite complex. The tax treatment is tied to the tax treatment for the option's underlying financial instrument.Futures contracts fall under the 60/40 rule, where 60% of gains are treated as long-term capital gains and 40% are treated as short-term capital gains (ordinary income) - regardless of the actual length of the holding period.Taxed as ordinary income.
DividendsIf you purchase a stock sufficiently long before it distributes dividends, you receive them.NoNoNo
Ease of taking a short tradeVaries, but generally not as easy as going long.Easy. Buy a put option.EasyEasy

Leverage

trade options - leverageLeverage involves borrowing a certain amount of the money needed (usually from your broker) to invest in something. Leverage is used to increase the potential return of an investment.

Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone It’s important to understand that leverage magnifies both gains and losses.

Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of the instrument.

For example, Forex trading offers high leverage in the sense that for a small account requirement, you can control a huge amount of money. Forex trades can be 50:1 or 100:1 leverage.

Check with your broker or the product listing to determine the leverage available for the instrument you are trading. You can read more about leverage here: http://www.investopedia.com/terms/l/leverage.asp

Commissions paid to broker

CommissionsKnow how much you are paying in commissions! And factor them in when planning your trading strategy. If you are taking short little scalping or day trades, your commissions can eat up all your profit. Be aware!

If you are trading Forex, you often pay no commissions, but you pay the spread, instead. The spread is the price difference between where a trader may purchase or sell the underlying asset – that is, the bid-ask spread. This can be substantial, depending on your broker, so be sure to check what it is.

Regulatedregulation

Why does it matter if a trading instrument is regulated? Government regulation is meant to assure that you, the trader, are not the target of fraud, mismanagement and abuse.

One of the main benefits of regulation is a controlled environment in which you can trade without having to worry about unfair practices like insider trading and the like. Not to say it doesn’t happen anyway, but the effect is significantly less.

For example, the SEC, which regulates the stock markets, investigates alleged incidences of crimes associated with the trade of securities in the U.S., including but definitely not limited to:

  • Insider trading
  • Spreading false information
  • Accounting fraud
  • Market manipulation
  • Collusion
  • Breach of fiduciary duty

It’s nice to have someone looking out for you in these areas!

Liquidity

liquidityLiquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Cash is considered the standard for liquidity because it can most quickly and easily be converted into other assets.

Typically, the more volume there is (the more trades taking place) in a trading instrument, the higher the liquidity. If there is high liquidity, you can be more certain of buying or selling your trade at the “current” price, because there are lots of other traders wanting to buy or sell at that price, and your transaction can be executed.

If a stock, for example, is very thinly traded (there are few traders wanting to buy or sell that stock, you may have to pay more or receive less than the published price, in order to find a buyer or seller willing to complete the transaction.

taxesTaxes

Oh boy, taxes! You should know what the tax hit will be on profits you take on any trade. They do differ, and it will make a difference to your bottom line. Tax computations can be complex and at the same time boring, so it is easy to want to ignore them. However, you would be well served to read up on the instrument you want to trade.

Here are a few links to read about taxes and trading:

Stock market, and longer term trades: https://www.ally.com/investing/trading/tax-implications-of-trading/

Day traders: http://www.marketwatch.com/story/tax-strategies-for-day-traders-2015-02-25

Futures traders: https://www.danielstrading.com/trading-tips/2013/03/27/tax-advantages-of-futures-trading

Dividends

If you are day trading or swing trading, or not trading stocks, you can skip this part, you won’t be receiving any dividends. However, if you are trading stocks, and holding for a longer time, you should be aware of the timing of dividends.

Here is a good page to read if you are planning to time your trades to take advantage of dividends: http://www.investorguide.com/article/12782/the-dividend-timing-trading-strategy-ws/

Ease of taking a short trade

Markets go up, they go down. Most traders like to take advantage, and profits, going both ways. Go long when it is going up. Go short when it is going down. Make profits.

However, if it is difficult to go short, you can’t follow this plan. So be aware of your market, and whether you can just jump in short if you want to.

Summary

So now  you have a better idea of whether you should trade  stocks vs forex vs futures vs options. If you educate yourself about the market you are going to trade in, then you are that much farther ahead in reaching your goal of profitable trading. Then, all your decisions will be the right ones.

the right choice

Apr 262017
 

Today I’m doing a review of Options University, where you can learn all about options, and how to trade them.

First, you might ask – why do I want to trade options? And what are the drawbacks to trading options?

Options University [Review]Why trade options

There are so many reasons options are a good choice. You can increase leverage, limit your risk, provide insurance for other trades, profit in bear markets, profit in a market going sideways.

(Plus, the Oracle on Wilshire uses them, and we’ve had lots of questions about the trades using options.)

trade options - leverageOption trading is very attractive for the small investor as it gives you the opportunity to trade a very large exposure for only a small amount of capital outlay.

trade options - lower riskYour risk is limited to the purchase price of the option, so if your analysis doesn’t match what actually happens in the market, you can only lose that purchase price, not more.

Here is a hypothetical example to illustrate the leverage possible. Suppose you and your friend Joe each decide to buy a Call for CTQ on May 1st.

Let’s say that on May 1, the stock price of Cory’s Tequila Co. (CTQ) is $67 and the premium (cost) is $3.15 for a July 70 Call.  “July 70 Call” means that the expiration is the third Friday of July and the strike price is $70. The total price of the contract is $3.15 x 100 = $315. (We ignore commissions for simplicity in this example.) Note that to outright purchase 100 shares, you’d have to pay $6700. So you are investing in $6700 worth of stock for only $315. Nice leverage.

Because your analysis of this trade looks good, both you and your friend Joe buy a contract each.

Three weeks later the stock price is $78. The options contract has increased along with the stock price and is now worth $8.25 x 100 = $825. Subtract what you paid for the contract, and your profit is ($8.25 – $3.15) x 100 = $510. You almost doubled your money in just three weeks! You could sell your options, which is called “closing your position,” and take your profits – unless, of course, you think the stock price will continue to rise. So you close, taking your $510 profit. But, your friend Joe decides to hold. Here is what happens next:

By the expiration date, the price of CTQ drops down to $62. Because this is less than our $70 strike price and there is no time left, the option contract is worthless. Joe is now down by the original premium cost of $315.

To recap, here is what happened to yours and Joe’s options investments:

Date May 1 May 21 Expiry Date
Stock Price $67 $78 $62
Option Price $3.15 $8.25 worthless
Contract Value $315 $825 $0
Paper Gain/Loss $0 $510 -$315

Okay this was a really simple example – there’s a lot more to it…

What are the drawbacks to trading options?

Options University [Review]There are some drawbacks, such as lower liquidity, higher commissions, and time decay. Also, options are not available for all stocks. However, the most important drawback is that they are complicated. Options are very complicated to beginners. Most beginners, and even some advanced investors, think they understand them when they don’t.

And here is where Options University comes in:

Options University

Here is what Options University says about itself: “Options University is the leading source for options training, strategies, safer investing and better profits. We are an educational company teaching investors how to make consistent profits with options while limiting risk.”

Courtney Smith

Courtney Smith

Steve Suminski

Steve Suminski

Options University was originally founded in 2004 by Brett Fogle and Ron Ianieri. Courtney Smith, a long time trader, author and CEO of numerous financial firms is the new owner. The CEO of Options University is Steve Suminski.

Now I’ve never met Steve, but Courtney I’ve known for years. And this I know about him – he is very knowledgeable, very experienced, makes a bunch trading, and is passionate about teaching others to trade well. I’ve seen him teach, and he is clear, concise, and friendly and funny.

Courtney makes teaching videos, does webinars, and live events that are both fun and packed with information you can use.

And this is what one of Options University’s students had to say about Steve:

Steve Suminski is not only a brilliant options strategist, but also a very effective and caring instructor who not only does what it takes to make the lesson clear, but also makes learning FUN!

Options are a very challenging and complex investment and Steve not only makes it simple, but also shares specific trades he is using to make money which has helped me pay for the course!

-Bonnie C.

Options University offers courses for investors at every level. They offer online courses as well as live onsite training, and ongoing memberships and coaching and mentoring.

For beginners wanting an inexpensive but comprehensive training, there is Options Academy Starter.

At a more advanced level, Options University offers live, interactive trainings like Options Academy Online, as well as ongoing membership where you can learn the material in interactive online webinars and home study modules. You can also get coaching and mentoring, to be sure you are executing correctly (and profitably).

Options are complicated, but well worth your while learning, because the benefits of trading options far outweigh the effort to learn to use them well. And because our own Oracle on Wilshire uses them extensively, if you follow the Oracle, you’ll be happy you learned to trade with options at Options University.

They have many different course options (pun intended) for you to choose from. To really know and use options to the best advantage, one of their best courses is Options Mastery Online. And they are having a special 60% off price right now – I don’t know how long this special will be available. Here is their description of this online course:

Options Mastery Online Training

golfTrading options may be a hobby for some. That’s fine. I believe just about everyone should trade options on some level. Most beginner level traders will buy CALL options, and maybe dabble with Covered Calls. Most will stick exclusively with bullish to moderately bullish trades simply because that’s human nature. Perfectly normal behavior and nothing wrong with it.

But then there’s you.

You’re not satisfied to be anything less than be a PRO LEVEL options trader. You don’t necessarily need to know it all, but you want to know what’s important for pros who TRADE FOR A LIVING, because that’s what you want. You want to MAKE BANK from the comfort of your home, and be completely financially independent. You want to WIN BIG IN EVERY MARKET, and do so with confidence and an easy kind of happiness. No more struggling. No more pulling your hair out. Just win, baby.

We’re ready to take you to that level!

The Options University Mastery Series includes both LIVE sessions with CURRENT options trading ideas, as well as ON DEMAND INSTRUCTION that will blow you away with never-taught-before EXCLUSIVE content based on Courtney Smith’s 40+ years of amazing Wall Street and pro trading experience as well as Steve Suminski’s quarter of a century of stock and options trading experience.

Here’s what’s included in this INCREDIBLE training:

  • The Pro Trader Visual Journey
  • The difference between KNOWING and MASTERING
  • Characteristics of the OPTIONS MASTER
  • All the Strategies and Techniques you NEED to Learn and Master
  • Going from Good to Great on all key Options Strategies
  • How to access and use P/L graphs to optimize profits and reduce risk
  • Managing your portfolio allocation
  • Unique strategies such as “FLIP FLOP BUNGEE DROP”
  • Advanced Butterfly trading with a UNIQUE VARIATION
  • A “STOCK REPAIR” strategy
  • Day in the Life of a PRO TRADER
  • How to Track your trades properly
  • Advanced Horizontal Spreads
  • Ratio Spreads
  • Advanced Order Entry
  • AND MUCH MUCH MORE!!!!

The Options Mastery training includes:

  • 12 LIVE Q&A / Advanced Trading Sessions
  • Six hours of super advanced instruction available ON DEMAND
  • A special VIP offer for the Options University Masters Program
  • SPECIAL BONUS: We’ll also include 10 HOURS of OPTIONS ACADEMY instruction!
  • This covers all major options strategies from the beginning + special techniques
  • That’s 28 HOURS OF Education!

Options University Register Now

What’s not so great about Options University?

Look, the main thing is, successful traders like you want to know how to trade options. Options University can give you great training. What’s not to like?

I’ll tell you what – you must spend a little money, and some time, some concentrated focused time, to learn how. That’s it. You must be dedicated to learning more.

I’ll close with another quote from a student:

“I’m just thrilled beyond myself about the Celgene (CELG) trade using the ‘Boing BoinBoing’ technique that you talked about at the last Options Boot Camp.

I entered it in my own account during the class, and I was thrilled to open my account today and see a gain of well over $2000 in just a few days with very little money at risk!

My account is not very big, so normally I would not invest in such an expensive stock. But you taught me how! I told all my friends about Options University, and now they all want it! Thank you so much for being my coach.”

– Teresa T.

If learning to trade Options looks attractive to you, click here to learn more about Options University.