Trading options as a hedging instrument

Options trading
The options trading is usually carried out by institutional investors for the purpose of hedging a large financial market transaction as well as all interested market participants for the sake of speculation. He plays in proprietary trading by banks a very important role and makes many for almost half of bank profits, is impossible to control in this regard, or even curb and can lead to distortions in the financial markets. However, exist within the large bank’s assurance mechanisms, such as a volume limitation for individual traders in the trading of options that just should not be undermined, as it had done in 2008, for example, the employees at the Societe Generale trader Jerome Kerviel. Then His options trading concerned knock-outs on the Dax.

Trading options as a hedging instrument

The options trading to hedge other transactions was the original reason at all to construct options that finally promise to respect or sell a commodity at a specified exercise price. Farmers and wheat traders can thus (until today) to protect against price fluctuations due to unreliable harvests when they negotiate the purchase prices for the coming autumn in the spring. Industrial companies protect themselves from price fluctuations in the raw materials and sales markets as well as against currency fluctuations, sales companies can balance out with the options pricing fine balance that they need for their businesses. This hedge (a “hedging” in the strict sense, although the term is used differently) is essential for the economic and trade patterns in the world. Nevertheless options in their various forms always an object of speculation as any securities. A demonization here is not effective because speculation is part of the human being and to the markets.

Speculation in the trading of options

Private investors can “Options” in various forms on the exchanges and over the counter (OTC, through specialized brokers) buy and sell. The most common today privately negotiated options are:

classic warrants with an expiry date and a strike price declining towards the end of the date
Knock-outs with and without an expiry date and with little decreasing price
CFDs without expiration date
Binary options with different expiration dates between 60 seconds to 365 days
The option is in the case of classical warrants, knock-outs, and CFDs on a rising or falling rate (call or put), Binary Options are equipped with a variety of special opportunities such as touching a price limit, which remain in a range and other variants. These options are available with traditional options in the form of so-called exotic option actually, but they have found few supporters, while Binary Options experiencing a real boom since its approval in January of 2008. Private investors have to deal with trading options with the various options. find top brokers here ,