FXFINPRO CAPITAL: Eternal values. Part 2


The Golden Rule: The rules were created for those who have gold.

It is undeniable fact that gold always attracts a high price. The unique qualities of this metal make it the undisputed leader among other similarly attractive investment opportunities. In a previous article we discussed the advantages of the gold trade in the Forex Market. Today we will consider the basic principles of the gold trade on the stock market.

Precious metals are highly liquid assets. Investing in gold is one of the ways to minimize risks in terms of inflation. Just as our clients are able to trade gold on Forex, so too, are they able to do on the stock market.

Gold trading through options and futures contracts

Gold Trading, as is the case with foreign exchange trading, can be carried out with leverage (the ratio of debt to equity).

A loosely formed option contract (stock option) is the standard exchange contract for the right to buy or sell an asset exchange, including a futures contract at the strike price before (or on) the due date for the payment of a right to a certain amount of money, called a premium.

"Buy" option - is to enclose it under the buyer and the "sell" option - is to enclose it under the seller.

Usually there are two types of options in stock practice: to buy (option "call") and to sell ("put" option). In the first case, the option buyer acquires the right but not the obligation to buy an exchange asset. In the second case, the buyer has the right but not the obligation to sell the asset.

The option buyer can be named as holder or owner. Seller of the option is called subscriber.

Options on futures contracts offer significant opportunities for insurance (hedging) risk, and allow a transaction with a high yield, low cost and limited risk. Options can be used by active investors with a small amount of funds, as well as by big professional participants of market.

Strategies with options

To build positions in options that matching your goals, you need to have your own prediction about the direction of the market, have an idea of how long you are going to take the position and have a point of view on the level of volatility in the market.

Option trading, most people start with the construction of the positions on the basis of predictions about the direction of the market. Investors achieve a higher level of skill, when familiarized with the mechanism of the stock options, begin to feel better their level of comfort with the positions of different lengths. Only at the highest stage comes understanding of the impact factor of the volatility in the trading decisions.

Consider the example of a standard purchase of option on gold, which will help you to further explore the mechanism of precious metals trading at the stock market.

Suppose that gold is trading currently at $ 300 per ounce. You bought 50 ounces, and now your goal is to build a stock option strategy that will increase the profitability of the basic position or protect against loss.

Scenario I. You predict a sharp rise of the price of gold tomorrow. You buy a short-term call options. Their price is relatively low, but if your prediction is confirmed, the value of your position will increase in many times.

Scenario II. You expect a slow growth market. You sell a call with a strike price of $ 310 for 1 month at a premium of $ 1. So, you find yourself in a long position for gold, and in a short for call on option.

If after a month, on the day of expiration of the option, gold will trade higher than $ 310 per ounce, you will have to sell your positions for 310 dollars to buyer of option. In this case, your profit is $ 11 (310 - 300 + 1), i.e. the price difference between buying and selling plus the premium received for selling the option.

If on the day of expiration of the option gold will be trade at a price between 300 and 310 dollars per ounce, such as 305 dollars, this strategy will increase the profitability of the position. In this case, you will earn $ 6 (305 - 300 + 1).

If at the expiry of the option gold will trade below $ 300 an ounce, this strategy will reduce your losses to the amount received for the sale of premium. [1]

In conclusion, it should be noted that the purchase of option on gold is a unique chance to minimize your risks by purchasing time-tested, constantly growing in value, assets.

Remember, there are no stupid questions. FXFINPRO CAPITAL provides their customers with all the necessary technical and information support. We sincerely wish you to achieve your financial goals and believe in your success.

FXFINPRO CAPITAL is your company.

[1] Simon Wain. Options as tools for private investment.

RISK WARNING: Trading of complex financial products, such as Stocks, Futures, Foreign Exchange ("Forex"), Contracts for Difference ("CFDs"), Indices, Options, or other financial derivatives, on "margin" carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading these markets, and seek advice from an independent financial advisor if you have any questions or doubts. Please carefully read our full "Risk Disclosure" and "Risk Disclosures for Financial Instruments & Investment Services". FXFINPRO Capital is the trading name of PFX Financial Professionals Limited, a limited liability company formed under the laws of Cyprus, registered with the Registrar of Companies in Nicosia, Cyprus, under nr. HE 237840 and regulated by the Cyprus Securities and Exchange Commission with license number 193/13.