Futures and Options Q & A | PFG Futures
19.Why have purchasing Options on Futures become such an increasingly popular Investment?
Buying options make it possible to realize a potentially substantial profit – often in a short period of time – with a relatively small investment with a known and limited risk. Under no circumstances can the loss exceed the cost of purchasing the option. Other advantages with purchasing options include:
- The leverage inherent with options because of their contract sizes
- The liquidity of exchangesthe established markets and
- The flexibility to respond rapidly to market opportunities
- The ability to track the value of your investment on a daily basis
- The staying power to ride the peaks and valleys without incurring additional costs or risks
- No “margin calls” that many other leveraged investments may incur
- The ability to profit from increasing or decreasing prices
20. Are Options a risky Investment?
Options are inappropriate investments for some people. This is why your broker will ask questions that may seem somewhat personal about your financial situation and objectives. They will also require that you acknowledge reading and understanding a Risk Disclosure Statement prepared by the Commodities Futures Trading Commission. Money needed for family living, insurance protection and basic savings programs obviously should never be committed to any form of investment that involves significant risk, regardless of the opportunity for profit.
21. How do I start Trading?
The trading process begins when a prospective customer discusses their financial goals with a commodity representative. At that time, the risks associated with trading futures, and options on futures, are explained to the customer. An account can be opened once it is established that the customer understands the financial risks and the financial requirements. The customer also signs several legal documents concerning their, and the firm’s, responsibilities regarding the account