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The optimal time to trade the forex foreign exchange market is when it's at its most active levels. That's when trading spreads the differences between bid prices and ask prices tend to narrow. In those situations, less money goes to the market makers facilitating currency trades, which leaves more money for the traders to pocket personally. Forex traders need to commit their hours to memory, with particular attention paid to the hours when two exchanges overlap. When more than one exchange is open at the same time, this increases trading volume and adds volatility—the extent and rate at which forex market schedule or currency prices change. The volatility can benefit forex traders. This may seem paradoxical.

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Investing stock options dummies for sale

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The upside on a long call is theoretically unlimited. If the stock continues to rise before expiration, the call can keep climbing higher, too. For this reason, long calls are one of the most popular ways to wager on a rising stock price.

If the stock rises only a little above the strike price, the option may still be in the money, but may not even return the premium paid, leaving you with a net loss. Here the trader sells a call but also buys the stock underlying the option, shares for each call sold. Owning the stock turns a potentially risky trade — the short call — into a relatively safe trade that can generate income.

Traders expect the stock price to be below the strike price at expiration. If the stock finishes above the strike price, the owner must sell the stock to the call buyer at the strike price. The upside on the covered call is limited to the premium received, regardless of how high the stock price rises.

Any gain that you otherwise would have made with the stock rise is completely offset by the short call. The downside is a complete loss of the stock investment, assuming the stock goes to zero, offset by the premium received. The covered call leaves you open to a significant loss, if the stock falls. So the strategy can transform your already-existing holdings into a source of cash. The covered call is popular with older investors who need the income, and it can be useful in tax-advantaged accounts where you might otherwise pay taxes on the premium and capital gains if the stock is called.

The upside on this trade can be many multiples of the initial investment if the stock falls significantly. The upside on a long put is almost as good as on a long call, because the gain can be multiples of the option premium paid. However, a stock can never go below zero, capping the upside, whereas the long call has theoretically unlimited upside. Long puts are another simple and popular way to wager on the decline of a stock, and they can be safer than shorting a stock.

When to use it: A long put is a good choice when you expect the stock to fall significantly before the option expires. If the stock falls only slightly below the strike price, the option will be in the money, but may not return the premium paid, handing you a net loss. In exchange for selling a put, the trader receives a cash premium, which is the most a short put can earn. If the stock closes below the strike price at option expiration, the trader must buy it at the strike price.

Like the short call or covered call, the maximum return on a short put is what the seller receives upfront. The downside of a short put is the total value of the underlying stock minus the premium received, and that would happen if the stock went to zero. When to use it: A short put is an appropriate strategy when you expect the stock to close at the strike price or above at expiration of the option. The stock needs to be only at or above the strike price for the option to expire worthless, letting you keep the whole premium received.

Many traders will hold enough cash in their account to purchase the stock, if the put finishes in the money. This strategy is like the long put with a twist. The trader owns the underlying stock and also buys a put. If the stock does fall, the long put offsets the decline. The maximum upside of the married put is theoretically uncapped, as long as the stock continues rising, minus the cost of the put. The married put is a hedged position, and so the premium is the cost of insuring the stock and giving it the opportunity to rise with limited downside.

The downside of the married put is the cost of the premium paid. As the value of the stock position falls, the put increases in value, covering the decline dollar for dollar. Because of this hedge, the trader only loses the cost of the option rather than the bigger stock loss. The married put allows you to hold the stock and enjoy the potential upside if it rises, but still be covered from substantial loss if the stock falls.

For example, a trader might be awaiting news, such as earnings, that may drive the stock up or down, and wants to be covered. As in these examples, you could buy a low-cost option and make many times your money. However, if you make a wrong bet, you could lose your whole investment in weeks or months. A safer strategy is to become a long-term buy-and-hold investor and grow your wealth over time. While options are normally associated with high risk, traders can turn to several basic strategies that have limited risk.

And so even risk-averse traders can use options to enhance their overall returns. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

How We Make Money. Editorial disclosure. James Royal. Written by. Bankrate senior reporter James F. Royal, Ph. Edited by Brian Beers. Edited by. Brian Beers. Brian Beers is the senior wealth editor at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Reviewed by Robert R. Reviewed by. Robert R.

Johnson, Ph. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

Options trading is when you buy or sell an underlying asset at a pre-negotiated price by a certain future date. Trading stock options can be complex — even more so than stock trading. When you buy a stock, you just decide how many shares you want, and your broker fills the order at the prevailing market price or a limit price you set. Options trading requires an understanding of advanced strategies, and the process for opening an options trading account includes a few more steps than opening a typical investment account.

Learn about the differences between stocks and options. In , the stock market has seen its share of highs and lows amid concerns about inflation, Russia's invasion of Ukraine and rising oil prices. When the market is volatile, options trading often increases, says Randy Frederick, managing director of trading and derivatives with the Schwab Center for Financial Research.

According to the Options Clearing Corporation, there were million options contracts traded in March , up 4. It was second-highest trading month on record. Accessed Apr 18, View all sources. Read our full explainer on what options are. Compared with opening a brokerage account for stock trading, opening an options trading account requires larger amounts of capital.

And, given the complexity of predicting multiple moving parts, brokers need to know a bit more about a potential investor before giving them a permission slip to start trading options. Wendy Moyers, a certified financial planner at Chevy Chase Trust in Bethesda, Maryland, says people who know the market well, and have time to watch it, are better suited to options trading than busy, beginner investors. Brokerage firms screen potential options traders to assess their trading experience, their understanding of the risks and their financial preparedness.

These details will be documented in an options trading agreement used to request approval from your prospective broker. See our list of the best brokers for options trading. Investment objectives. This usually includes income, growth, capital preservation or speculation. Trading experience. Personal financial information. Have on hand your liquid net worth or investments easily sold for cash , annual income, total net worth and employment information.

The types of options you want to trade. For instance, calls, puts or spreads. And whether they are covered or naked. The seller or writer of options has an obligation to deliver the underlying stock if the option is exercised.

If the writer also owns the underlying stock, the option position is covered. If the option position is left unprotected, it's naked. Based on your answers, the broker typically assigns you an initial trading level based on the level of risk typically 1 to 5, with 1 being the lowest risk and 5 being the highest. This is your key to placing certain types of options trades. Screening should go both ways.

The broker you choose to trade options with is your most important investing partner. Finding the broker that offers the tools, research, guidance and support you need is especially important for investors who are new to options trading. Learn how to choose an options broker. As a refresher, a call option is a contract that gives you the right, but not the obligation, to buy a stock at a predetermined price — called the strike price — within a certain time period.

Learn all about call options. A put option gives you the right, but not the obligation, to sell shares at a stated price before the contract expires. Learn all about put options. Which direction you expect the underlying stock to move determines what type of options contract you might take on:. If you think the stock price will move up: buy a call option, sell a put option. If you think the stock price will stay stable: sell a call option or sell a put option.

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Where you open your account really depends on how much you want to do when it comes to your investments. If you don't want to think about investing at all, and just want it all handled for you, you might consider investing at a robo-advisor like Betterment. With a tool like Betterment, you open an account, answer some questions, and deposit your money. Betterment handles the rest for a small annual fee. It's that easy. You can even setup direct deposits and have it done automatically for you!

Check out Betterment here. If you want a little more control over what you invest in, maybe want to pick some of your own investments, check out M1 Finance. They are a free investing platform that requires a little more work, but they do allow you to customize your portfolio beyond their basics. And best of all, it's commission-free. Check out M1 Finance here.

Once you have your account open, you need to actually invest your money. This is a step that some people forget to do - they simply deposit money into their brokerage and nothing happens with it. If you're investing at a robo-advisor like Betterment, this is taken care of for you. But if you're investing anywhere else, you need to go in and choose your investments.

This is the hardest part for most people, because it can be scary and confusing about what to actually invest in. Here's we like to keep things simple, especially if you're reading Investing for Dummies. That means a simple, small, low cost index funds portfolio. Here's a few examples we recommend: Lazy Portfolios. If you like the investment, you simply find the symbol the letters representing the investment , enter that trade, and you're set. If you're investing on M1 Finance, you can setup each symbol as a pie slice to make it really easy for future investments.

Once you're invested, you're not done. There is definitely some follow-up that needs to happen on your part. Not a lot, but some. While investing in mutual funds and ETF is much less hands-on, you should evaluate your portfolio at least once a year, if not once a quarter. Then, you should think about setting up automatic investing. This is a great way to build your portfolio over time. Finally, you have to handle some tax paperwork every year. If you're invested in an IRA, you simply save the paperwork and nothing is required.

However, if you're investing in a taxable brokerage account, you need to potentially report your earnings on your tax return every year. Don't be scared by taxes, it's not complicated for most situations. Here's our list of the best tax software for investors , but you can also consult with a CPA or tax professional if you don't know what to do. You can learn more about him on the About Page , or on his personal site RobertFarrington. He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He is also a regular contributor to Forbes. The College Investor is an independent, advertising-supported publisher of financial content, including news, product reviews, and comparisons. Other Options. Get Out Of Debt. How To Start. Extra Income. Build Wealth. Credit Tools. Here's a couple other guides that you might find useful depending on your age: Getting started investing in high school Getting started investing in college Getting started investing in your 20s Getting started investing in your 30s.

Table of Contents What Is Investing? Getting Started Investing For Dummies. Opening Your First Account. What Is Investing? There are multiple different types of products to invest in: Stock - a piece of ownership in a company Bond - a piece of debt of a company think of it like an IOU ETF - a basket of stocks or bonds Mutual Fund - a basket of stocks or bonds We recommend novice investors focus on ETFs and Mutual Funds.

Why Invest? Beginner traders generally learn about call options first because they are the simplest options to understand. Buying a call option is easy to understand because in some ways it mirrors buying a stock. When you buy a stock low, and it rises, you can sell it for a profit. Generally, you can buy a call at a lower price and sell it at a higher price for a profit when the underlying stock rises. For this reason, beginner options traders sometimes think calls are always bullish, meaning they only make money when stocks rise.

But call options can also make money when stocks fall. It just depends on whether you start a trade by buying the call or selling the call. Call options are not always purchased to begin a trade. It is possible to start a trade by selling calls too. And when you sell a call to start a trade, you make money when the stock goes lower, so selling calls is labeled a bearish strategy, meaning you make money when stocks fall. So, calls can be either bullish or bearish. If you buy a call to start a trade, you want the stock to rise to make money, so buying calls is bullish.

Whereas when you sell a call to begin a trade, you want the stock to fall to make money, so selling calls is bearish. You can buy a put option to start a trade which makes money when a stock falls, and so is bearish. Or you can sell a put option to begin a trade, which makes money if the underlying stock rises, and so is bullish. We mentioned that calls and puts can be bought and sold at specific prices.

These prices are called strike prices. That might seem like a good deal and almost too good to be true. But remember someone else is on the other side of the trade, and for them that outcome would be very costly. The person on the other side of the trade sold the call option, and they have an obligation to sell the stock to you when you decide to buy it. As you can quickly see, when you begin a trade by selling calls, the risk is high. And naked calls are generally only appropriate for the most sophisticated and deep-pocketed of options traders.

A much safer and more popular strategy is when you own stock and sell a call s against it. This strategy is called the covered call, and is one of the safest and best options trading strategies to produce consistent income. Top options trading platforms, such as tastyworks , make it easy to place covered calls. When you purchase a put option, you do so at a specific strike price.

This gives you the right to sell stock at a pre-agreed price for a fixed time period. When you exercise your right to sell your stock, the trader on the other side must buy it from you. It may seem like a raw deal for the other trader, and it gets worse if the stock continues to fall.

But keep in mind the trader who sold you the put option is like an insurance salesperson who is betting on a good outcome. If the stock had moved higher they would have made money. In fact, even if the share price remained flat they would have made money. Like an insurance company, the only time the put seller loses is when there is a bad outcome — when the stock falls. As the put buyer, you would have lost money if the stock had risen because buying puts to start a trade is a bearish strategy.

Because you took money out of your pocket to pay for the put option, you essentially purchased the equivalent of an insurance policy. When the stock dropped, your insurance contract gave you the right to sell your stock at the higher price.

Similarly, if you paid for a car insurance policy and subsequently got into a car crash, you could cash in your policy and buy a new car. When you buy an option, you are the holder of the option. You may be a call option holder or a put option holder. As the holder of an option, you have a lot more control than an option writer. For example, you can exercise your right to buy or sell stock, depending on whether you own a call or put respectively, anytime you wish up until expiration.

In contrast, when you sell an option, you are labeled an option writer. When you sell calls, you are a call writer, and when you sell puts, you are a put writer. These uncovered calls are labeled naked calls and the risk you incur when selling these calls is theoretically unlimited; when the stock goes higher, your risk and loss increases. Writing puts is also somewhat risky though not nearly as risky as writing calls.

When you sell puts, you are entering what is called a naked put position. If the stock goes lower, you must fulfill your obligation to buy the underlying stock if assigned. The maximum you can lose in a naked put position is the amount you pay for the stock minus the amount received when you sell the put. Unlike stocks, options exist for a fixed duration of time and then the option contracts become void. You can theoretically hold a stock forever, but an option will eventually expire based on its expiration date.

For example, if you buy a call, you can exercise your right to buy the underlying stock up to the expiration date. And if you buy a put option, you can exercise your right to sell the stock at any time up to the expiration date. For example, if you sell a call option you may be assigned an obligation to sell the underlying stock and if you sell a put option you may be assigned an obligation to buy the underlying stock.

When you buy or sell call or puts you either pay for or receive an amount, called the option value, which has two components: intrinsic value and extrinsic value, also known as time value. A call option is in-the-money when the share price is higher than the call strike price.

If a call option strike price is higher than the current share price, it is labeled an out-of-the-money call while a put option is out-of-the-money if its strike price is below the current share price. When both the share price and strike price of an option are approximately equal, the option is termed at-the-money.

One of the most important components of this options trading for dummies guide is option greeks, which are measures of risk that affect the pricing of an option. Option greeks are named after letters of the greek alphabet for the most part, with vega being the exception, as follows:. For example, if delta is 0. Delta and theta are perhaps two of the most important options greeks, because they have arguably the greatest impact on the price of the option.

As an option approaches its expiration date, the time value or extrinsic value erodes bit by bit, all else being equal. Every day the option loses some value due to theta, and the closer it is to expiration, the faster the decay rate. Theta lets you know by how much the option decays in value.

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Terms apply. Generally speaking, to invest in stocks, you need an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option. We break down both processes below. An important point: Both brokers and robo-advisors allow you to open an account with very little money. An online brokerage account likely offers your quickest and least expensive path to buying stocks, funds and a variety of other investments.

We have a guide to opening a brokerage account if you need a deep dive. You'll want to evaluate brokers based on factors such as costs trading commissions, account fees , investment selection look for a good selection of commission-free ETFs if you favor funds and investor research and tools.

A robo-advisor offers the benefits of stock investing, but doesn't require its owner to do the legwork required to pick individual investments. Robo-advisor services provide complete investment management : These companies will ask you about your investing goals during the onboarding process and then build you a portfolio designed to achieve those aims.

This may sound expensive, but the management fees here are generally a fraction of the cost of what a human investment manager would charge: Most robo-advisors charge about 0. And yes — you can also get an IRA at a robo-advisor if you wish. One thing to note is that although robo-advisors are relatively inexpensive, read the fine print and choose your provider carefully.

Some providers require a certain percentage of an account to be held in cash. The providers generally pay very low interest on the cash position, which can be a major drag on performance and may create an allocation that is not ideal for the investor. If you choose to open an account at a robo-advisor, you probably needn't read further in this article — the rest is just for those DIY types. Going the DIY route? Don't worry. Stock investing doesn't have to be complicated.

For most people, stock market investing means choosing among these two investment types:. Stock mutual funds or exchange-traded funds. Mutual funds let you purchase small pieces of many different stocks in a single transaction. When you invest in a fund, you also own small pieces of each of those companies. You can put several funds together to build a diversified portfolio. Note that stock mutual funds are also sometimes called equity mutual funds.

Individual stocks. Building a diversified portfolio out of many individual stocks is possible, but it takes a significant investment and research. If you go this route, remember that individual stocks will have ups and downs. If you research a company and choose to invest in it, think about why you picked that company in the first place if jitters start to set in on a down day. The upside of stock mutual funds is that they are inherently diversified, which lessens your risk.

For the vast majority of investors — particularly those who are investing their retirement savings — a portfolio made up of mostly mutual funds is the clear choice. But mutual funds are unlikely to rise in meteoric fashion as some individual stocks might. The upside of individual stocks is that a wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.

See our list of the best brokers for ETF investing. New investors often have two questions in this step of the process:. How much money do I need to start investing in stocks? The amount of money you need to buy an individual stock depends on how expensive the shares are. Share prices can range from just a few dollars to a few thousand dollars. If you want mutual funds and have a small budget, an exchange-traded fund ETF may be your best bet. How much money should I invest in stocks? Individual stocks are another story.

A general rule of thumb is to keep these to a small portion of your investment portfolio. Stock market investments have proven to be one of the best ways to grow long-term wealth. Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with stock market basics.

If your portfolio is too heavily weighted in one sector or industry, consider buying stocks or funds in a different sector to build more diversification. Finally, pay attention to geographic diversification, too. You can purchase international stock mutual funds to get this exposure. Yes, if you approach it responsibly. One of the best is stock mutual funds, which are an easy and low-cost way for beginners to invest in the stock market.

These funds are available within your k , IRA or any taxable brokerage account. The other option, as referenced above, is a robo-advisor , which will build and manage a portfolio for you for a small fee. Generally, yes, investing apps are safe to use. Even in these instances, your funds are typically still safe, but losing temporary access to your money is still a legitimate concern. However, investing small amounts comes with a challenge: diversifying your portfolio.

Diversification, by nature, involves spreading your money around. The less money you have, the harder it is to spread. One solution is to invest in stock index funds and ETFs. These often have low investment minimums and ETFs are purchased for a share price that could be lower still , and some brokers, like Fidelity and Charles Schwab, offer index funds with no minimum at all.

And, index funds and ETFs cure the diversification issue because they hold many different stocks within a single fund. The last thing we'll say on this: Investing is a long-term game, so you shouldn't invest money you might need in the short term.

That includes a cash cushion for emergencies. Regular investments over time, even small ones, can really add up. Use our investment calculator to see how compounding returns work in investing. The key to this strategy is making a long-term investment plan and sticking to it, rather than trying to buy and sell for short-term profit. Why five years? That's because it is relatively rare for the stock market to experience a downturn that lasts longer than that. But rather than trading individual stocks, focus on diversified products, such as index funds and ETFs.

Index funds and ETFs do that work for you. In our view, the best stock market investments are often low-cost mutual funds, like index funds and ETFs. By purchasing these instead of individual stocks, you can buy a big chunk of the stock market in one transaction.

Investors who trade individual stocks instead of funds often underperform the market over the long term. Investing in stocks will allow your money to grow and outpace inflation over time. When you buy a share of stock, you are owning a tiny little piece of that company.

If the company does well, you are typically rewarded with the price of the stock going up, and if it does badly, the price can go down. Because you do have the potential to lose money, you are compensated a bit more than other places to park your money like FDIC insured money market accounts.

They are basically the same thing, but there are nuances as to why they are different that don't matter for this discussion. These are the biggest companies in the United States. It's an easy way to build a portfolio. So, now that you understand the basics of investing, why would you invest versus just saving your money - especially since there is the risk of loss? Because, over time, investing has provided better long term returns that other places of putting your money. And if you want to retire someday, you need your money to work for you and grow.

Saving alone will probably not get you to where you need to be. They're historical - meaning that because this happened in the past doesn't mean it will happen exactly the same in the future. However, for the long term, investing has outperformed keeping your money in cash over the long run.

So, if you're 30 years old, and looking at how to grow your money to a solid amount by the time you're 65, investing is the way to go. Savings alone just won't cut it for you. Now that you know the basics of what investing is and why you should invest, you need to understand some basics on getting started investing. Retirement: If you're saving for retirement, investing is typically a good choice. Long term returns on investing typically outperform other investments. In the account, the money grows tax free, but you can only take it out without penalty in retirement - which can be limiting for some.

But the tax benefits make it worth it! You are better off just savings your money, or maybe looking at a Certificate of Deposit. Remember, investing is for the long term, and in the short term, you can lose money.

If you need the money in the near future, you likely shouldn't invest. If you want to invest for the medium term, and don't want your money locked up into retirement, you can still open a regular brokerage account. This is the actual account that holds your investments.

It's a little different than a savings account, and you usually have to be at a different company than your bank. Where you open your account really depends on how much you want to do when it comes to your investments. If you don't want to think about investing at all, and just want it all handled for you, you might consider investing at a robo-advisor like Betterment.

With a tool like Betterment, you open an account, answer some questions, and deposit your money. Betterment handles the rest for a small annual fee. It's that easy. You can even setup direct deposits and have it done automatically for you! Check out Betterment here. If you want a little more control over what you invest in, maybe want to pick some of your own investments, check out M1 Finance.

They are a free investing platform that requires a little more work, but they do allow you to customize your portfolio beyond their basics. And best of all, it's commission-free. Check out M1 Finance here. Once you have your account open, you need to actually invest your money. This is a step that some people forget to do - they simply deposit money into their brokerage and nothing happens with it. If you're investing at a robo-advisor like Betterment, this is taken care of for you.

But if you're investing anywhere else, you need to go in and choose your investments. This is the hardest part for most people, because it can be scary and confusing about what to actually invest in. Here's we like to keep things simple, especially if you're reading Investing for Dummies. That means a simple, small, low cost index funds portfolio. Here's a few examples we recommend: Lazy Portfolios. If you like the investment, you simply find the symbol the letters representing the investment , enter that trade, and you're set.

If you're investing on M1 Finance, you can setup each symbol as a pie slice to make it really easy for future investments. Once you're invested, you're not done. There is definitely some follow-up that needs to happen on your part. Not a lot, but some.

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Options Trading Explained - COMPLETE BEGINNERS GUIDE (Part 1)

Featuring clear explanations of how your stock options might make you money—or not—this friendly guide fills you in on what you need to know to: Understand. Updated with new facts, charts, and strategies to help investors beat today's tough markets, Trading Options For Dummies helps you choose the right options. Basic strategies for beginners include buying calls, buying puts, selling covered calls, and buying protective puts. There are advantages to trading options.