Advantages and disadvantages of trading in futures and options


To be a real pro will take at least 1 year. Do not forget this Volume - Some options don't trade that much which in turn means there's little liquidity. With spreads like that it's almost impossible to make money. As a good rule of thumb, first check out the average daily volume and if it's low don't get involved with those options Computers normally have to be used - Not always but it's hard to discount their usefulness when using options.

If you're not that competent with computers and struggle with Spreadsheet programs like Excel that's going to be a disadvantage Wasting assets - Normally a disadvantage to most people new to options because they'll often start off buying them. But options lose value over time so not only do you have to be right on direction but also with your timing. Direction is often not that hard to predict, but timing is a different story altogether Unlimited risk - If you sell an option short your risk is often unlimited.

Short calls have unlimited risks attached theoretically there's no limit to how high a share can rise. The risk on a short put is limited as the underlying cannot fall below zero. But if the underlying were to fall sharply the losses on short puts can be horrendous. Read more in the Options section: How options are priced. Option volatility - It's critical. Using Options to hedge. The importance of timing. How to Learn Spread betting and Prosper.

Options - Home page. The fact that each optionable stock will have options trading at different strike prices and expirations means that the particular option you are trading will be very low volume unless it is one of the most popular stocks or stock indexes. This lower liquidity won't matter much to a small trader that is trading just 10 contracts though. Options tend to have higher spreads because of the lack of liquidity.

This means it will cost you more in indirect costs when doing an option trade because you will be giving up the spread when you trade. Options trades will cost you more in commission per dollar invested. These commissions may be even higher for spreads where you have to pay commissions for both sides of the spread. Options are very complicated to beginners.

Most beginners, and even some advanced investors, think they understand them when they don't. When buying options you lose the time value of the options as you hold them. There are no exceptions to this rule.