When currency traders get involved in the options trading business, they earn well for the first few days. The reason for earning a decent amount of money is because of the expiry of the trades. The trades are closed automatically and the profits are booked.
As traders gain more experience, they start to lose money because they don’t have a clear concept of the ROI or the payout. In fact, they don’t have known how to find the optimum expiry for a certain trade.
There are certain things that differentiate the options market from the Forex market. So, you have to learn those things, or else, you should stick to the Forex trading career.
We are assuming you want to take advantage of the options market. Let’s learn some well-balanced techniques you can use to manage the trades like an expert.
Though some of the trades will seem perfectly fine you should still stick to the rules. Remember, discipline is the secret of success for many professional traders in the United Kingdom.
Time frame selection
You have to select the time frame with an extreme level of caution. If you choose the 1-hour time frame, you should not set the expiry for more than 60 minutes.
In some cases, the brokers give the option trade’s expiry and you have nothing to do with the timing. In that case, you have to select the time frame according to the expiry of the trade.
Usually, rookies prefer to trade an option with a 60-second expiry. But taking trades with such tight frame requires you to analyze the 5 minute and 1-minute chart simultaneously.
Unless you are good at analyzing the market variables, it will be tough to make a profit. Learn about the time frame selection process as it will help you to manage your trades better.
ROI or payout
In each trade, you will get different payouts. The experts prefer options trading with Saxo since the payout for the trade is decent enough to cover up the losses. But a bad broker will create such a loop that it will become hard to make money even if you win 80% of the time. If the payout is less than 70%, you should not take the trade.
It’s like determining the risk to reward ratio in the trade. If you trade with a 1:1 risk to reward ratio, you know you have won more than 50 % of the time just to stay in the game.
But if you trade with a 1:5 risk to reward ratio, you can make huge money just by winning 40% of the time. It makes a big difference in your result. So, analyze the ROI before you take a trade.
Analyze the condition of the market
As the traders are taken with a specific expiry period, you should be careful about the major news. Focusing on the news schedule gives you an edge to take the trade with low risk. People often become confused that and trade after the news. But this is not the right way to deal with the news. You have to assess the volatility of the market.
If you can predict the price movement and relate it to the news data, you can execute the trade. But if the news data and technical level seem to come out of the blue, you shouldn’t be taking any trade. This is more like a rule of thumb that most options traders follow.
Becoming an options trader is an easy task provided you are following these rules. However, it’s not necessary to trade only the options market. You can trade Forex, CFDs, and options based on the condition of the market. Having access to different markets gives you a better chance to make a profit.