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| Information About Futures (part 3) |
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| Daytrader-Generation “No Gambling but True Working Tools to Achieve Profit” "Day-Trading, Business of the Future !" |
| Some questions and answers |
* Do options carry less risk than futures ?
Not necessarily. If you plan to trade through an individual account and are considering trading options on futures contracts, you should familiarize
yourself with the types of options (puts or calls) that you contemplate trading and the risks associated with each. You should calculate the extent
to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs.
You should also understand that certain market conditions (such as lack of liquidity), market rules, or the pricing relationships between the
underlying interest and the option may increase risk.
* Do the risks vary between puts and calls ?
The purchaser of an option (known as a "long" call or being "long" a put) can do the following with an option position. The purchaser may
"exercise" the option if it is profitable, or allow the option to expire if it is not profitable. The exercise of an option by someone who is "long" results
either in a cash settlement or in the purchaser acquiring the underlying interest. If the option is on a futures contract, the purchaser will acquire a
futures position with associated liabilities for margin (see the section, Futures, above). If a purchased option expires worthless, you will suffer a
total loss of your investment, which will consist of the option premium plus transaction costs. If you are contemplating purchasing
"deep-out-of-the-money" options, you should be aware that the chance of such options becoming profitable ordinarily is remote.
Selling, or shorting, an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is
fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the
market moves unfavorably. The seller will also be exposed to the risk that the purchaser will exercise the option, obligating the seller to either
settle the option in cash or to acquire and deliver the underlying interest. If the position is "covered" by the seller holding a corresponding position
in the underlying interest or a future or another option, the risk of loss may be reduced, but the loss may still exceed the premium received. If the
option is not covered, the risk of loss can be unlimited.
/* How do commissions and fees affect my rate of return ?
Obviously, fees will reduce your rate of return and should, therefore, be examined carefully. In an individual account, the disclosure statement
does specify fees and expenses. However, you are encouraged to consult your broker and be fully aware of the fees you will be charged. A
commodity pool is required to provide you with a complete description of fees, commissions, and other expenses. Before allocating any funds to
a pool, you should pay particular attention to the "break-even analysis" and other required fee disclosures to determine how fees will affect your
potential rate of return.
* Is there a limit on potential losses ?
Before participating in a commodity pool, read the disclosure document closely for information on losses. Losses to commodity pool participants
are ordinarily (but not always) limited to the amount of your participation. Sometimes in a commodity pool, in order to protect against catastrophic
losses, a loss greater than a given percentage will trigger the sale of all open positions and will result in closing the pool account. The
disclosure document must clearly state this possible course of action.
In an individual account, the leveraged nature of transactions can result in significant losses or gains, and losses may exceed your initial margin
deposit. If so, you are responsible for covering those losses with additional funds.
Not necessarily. If you plan to trade through an individual account and are considering trading options on futures contracts, you should familiarize
yourself with the types of options (puts or calls) that you contemplate trading and the risks associated with each. You should calculate the extent
to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs.
You should also understand that certain market conditions (such as lack of liquidity), market rules, or the pricing relationships between the
underlying interest and the option may increase risk.
* Do the risks vary between puts and calls ?
The purchaser of an option (known as a "long" call or being "long" a put) can do the following with an option position. The purchaser may
"exercise" the option if it is profitable, or allow the option to expire if it is not profitable. The exercise of an option by someone who is "long" results
either in a cash settlement or in the purchaser acquiring the underlying interest. If the option is on a futures contract, the purchaser will acquire a
futures position with associated liabilities for margin (see the section, Futures, above). If a purchased option expires worthless, you will suffer a
total loss of your investment, which will consist of the option premium plus transaction costs. If you are contemplating purchasing
"deep-out-of-the-money" options, you should be aware that the chance of such options becoming profitable ordinarily is remote.
Selling, or shorting, an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is
fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the
market moves unfavorably. The seller will also be exposed to the risk that the purchaser will exercise the option, obligating the seller to either
settle the option in cash or to acquire and deliver the underlying interest. If the position is "covered" by the seller holding a corresponding position
in the underlying interest or a future or another option, the risk of loss may be reduced, but the loss may still exceed the premium received. If the
option is not covered, the risk of loss can be unlimited.
/* How do commissions and fees affect my rate of return ?
Obviously, fees will reduce your rate of return and should, therefore, be examined carefully. In an individual account, the disclosure statement
does specify fees and expenses. However, you are encouraged to consult your broker and be fully aware of the fees you will be charged. A
commodity pool is required to provide you with a complete description of fees, commissions, and other expenses. Before allocating any funds to
a pool, you should pay particular attention to the "break-even analysis" and other required fee disclosures to determine how fees will affect your
potential rate of return.
* Is there a limit on potential losses ?
Before participating in a commodity pool, read the disclosure document closely for information on losses. Losses to commodity pool participants
are ordinarily (but not always) limited to the amount of your participation. Sometimes in a commodity pool, in order to protect against catastrophic
losses, a loss greater than a given percentage will trigger the sale of all open positions and will result in closing the pool account. The
disclosure document must clearly state this possible course of action.
In an individual account, the leveraged nature of transactions can result in significant losses or gains, and losses may exceed your initial margin
deposit. If so, you are responsible for covering those losses with additional funds.
| Trader : Herman Bogaerts -- Tradersname : Freedom -- E-Mail : Admin@daytrader-generation.com -- Skype Address : Freedom1608 |
==) clearly identified your financial goals, including the amount of risk and loss you can sustain !
==) determined how much assistance you want from a trading advisor in making trading decisions !
==) received and thoroughly reviewed the disclosure document -- before you open an account !
==) clearly understood the disclosure document, including the statement of fees, the potential for loss,
your right to withdraw your funds and the "break-even analysis " !
==) called your Advisor and/or Broker in case you have doubts or questions !
==) determined how much assistance you want from a trading advisor in making trading decisions !
==) received and thoroughly reviewed the disclosure document -- before you open an account !
==) clearly understood the disclosure document, including the statement of fees, the potential for loss,
your right to withdraw your funds and the "break-even analysis " !
==) called your Advisor and/or Broker in case you have doubts or questions !
| Go to Futures Info Part 4 : click here Back to "Futures Info" : click here Back to "Frequently AskedQuestions" : click here |
| Before you trade futures or options, have you : |
| Source : * About.com * Wikipedia.com |