Aside from stock trading, perhaps two of the more popular trading instruments in the financial market today are options and foreign exchange. The two are separate entities in that forex involves soley currencies, while options can represent a variety of stock representations. Also, forex are bought and traded freely in the market, while options are usually given as rewards and compensations boosters for executives are exercised under a pre-determined rate and time frame.
Forex trading, short for foreign exchange trading, involves the buying and selling of the many currencies of the world. It does not operate via a central exchange site, like traditional stock market trading, and may, thus, fully function a 24-hour basis. When compared to other exchanges, the forex trading market is the largest in the world, even beating the New York Stock Exchange (NYSE) by over a hundredfold, in terms of daily trading volume, most of which are conducted by private entities and individuals.
Because of the absence of a central exchange, forex trading happens between two parties directly. Buyers and sellers communicate and trade via the phone, the Internet or other communications networks worldwide. In addition, trading forex is also speculative, meaning, they are based on expectations on whether a certain currency would rise or fall, depending on current market conditions. It is risky business, but the returns have often proved themselves worth the risk.
There are two forms of options: the call option and the put option. If you buy a call option, you are expecting your stock price to go up and you would prefer the put option if you expect the opposite, meaning you expect prices of your stock to decline.
Options are given out for a variety of reasons, but most of them are according to the following:
- companies want to retain their top performers and attract good candidates from outside with incentives
- companies want their staff to feel accountable for the company’s performance by making them feel as if they are partners or owners in the business
- companies want to hire workers who are skilled in their chosen fields by offering incentives and compensations that are attractive
It is also important to note that options have expiration dates. The expiration date is the deadline set by both parties on when the stock option should have been traded or sold. The option should not stay for too long on an investor’s hand because doing do would make it void, especially after the expiration date. If this lapses then the value of the options is considered void and worthless.
Now that you know the basic concepts behind forex and options, it will be easier for you to understand the nature of their movements in the market. However, a grasp of the basic ideas is not enough, for both are equally tricky to delve into. It suggested that you seek more literatute on the two subjects to gain a more solid ground.