Options -> Spread

Power Options Trading

The Secret Hidden Market

By: Paul Nickel

Most people believe that the majority of money exchanged daily by the banks, insurance and brokerage houses happens on the well known Dow and S&P. The truth is, by far the most money that exchanges hands occurs in the currency markets, and dwarfs the amount exchanged on the Dow and S&P. Most people have heard of the Forex market, but have no knowledge of how to trade it, and thus have some fears about investing there. Fortunately, there are new tools available to trade them without much sweat.

The easiest way is to trade currencies is to just open an account at any bank that allows multi-currency deposits. Then just specify when you deposit which currency you prefer. Or you can park your money in a basket of currencies. This way you can diversify outside your home currency and still get a decent yield.

A second way, and the newest, is to invest in an ETF (exchange traded fund) What makes this different is that you can trade these on any standard brokerage account. Theres no need to open a separate forex account as was previously required. Currently there are seven ETFs (more are to be added) and they are traded on the New York Stock Exchange. These include the Euro (FXE), British pound (FXB), Mexican peso (FXM), Swedish Krona (FXS), Australian dollar (FXA), Canadian dollar (FXC) and Swiss franc (FXF).

Another way to trade currencies is to buy options. The advantage here is that you can leverage your money for spectacular profits yet limit your losses (your loss is only limited to the price of the option plus broker commissions). These are probably best used as a tool to catch major trends in the markets, as the spread on options makes it prohibitively expensive to buy and sell these on a short term basis without a major movement in the underlying currency.

Lastly, you can trade directly in the currency futures and forex. This is where leverage can make huge gains. But its the most risky. Youll need to be in front of a screen watching whats happens, as positions will change rapidly. This takes a lot of know how and should'nt be done without diligent research, education and practice. Start off by paper trading. Many online brokers have paper trading accounts where you can try your hand at it, and track how well you do. You have to be disciplined to trade in this market, but the payoff can be huge.

Paul Nickel has been trading successfully for years and has more information about trading at http://www.lowrisktrading.info. This article may not be used in part or in whole unless author name and link sites are provided with the copied atrticle.

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