Hi friends. We are now done with the
basics of options. We were to start with the strategies today, but we
received several requests from many of you asking why should we trade in
Option and what can be the major advantages and disadvantages of
trading in the options. Well this is a very relevant question as we
should know the depth of the water before jumping in the swimming pool.
So before we start the strategies, today we will take up major advantages and disadvantages of trading in options.
Main advantages of trading in Options
- Low capital needed: Capital
required to trade is exceptionally low in case of Options. When
compared to Cash and Futures, you can trade for a lot more in Options
with the same amount of money.
- Limited Risk:
When you buy an Option, you can create strategies, wherein you have
limited loss, but unlimited profit. This why you have complete control
over your position even before you have created one.
Unlike in futures or cash market, you just need to pay a small premium
on the option that you purchase. This way you can trade for higher
values with limited money.
- Unique strategies:
Options allow you to create unique strategies which can help you to
take advantage of different types of market conditions like high market
volatility and time decay.
- Hedging instrument: Options are a very good hedging instrument wherein you can also completely hedge long-term stock positions at a low cost. Options work as an excellent tool for protecting your stock portfolio.
Main disadvantages of Options
- High Brokerage charges:
Traditionally brokerage on options is charged on a per lot basis, which
becomes really high and makes it difficult for the traders to generate
profits. Though this situation
actually becomes your advantage when you trade with Moneypalm as
Moneypalm Discount Brokerage charges only Rs. 15 per executed order in
options, irrespective of your trade size, thus making the brokerage cost
- Difficult to understand:
Options are very complicated and difficult to understand for the
beginners. People generally tend to avoid trading in options as they do
not have proper knowledge of how to trade in Options. If you also find
it difficult to trade in Options, keep following our blog TradeTalk which teaches you how to be a smart trader.
We hope that you have now understood the
advantages of trading in Options and also the disadvantages associated
with them. Though the disadvantages can be turned into the advantages,
if we have proper knowledge of options. We always stress on learning the
trade strategies, as nobody can earn money for you other than yourself.
Of course, as your All Weathered Friend, Moneypalm is always here to
help you learn the art and science of trading in the stock market as we
have firm belief in our policy of “Together We Grow”.
So friends, keep learning, keep earning and keep growing. We are always here to support you.