One of the most important point to understand before venture in the world of the trading is that is not possible to do any commerce without have the knowledge and a strategy. The strategy is not something that can be learned in one day, an a lot of experience traders take years before realize which one could be a good or a winning strategy. Also because, in the on-line market, there is not only one profitable plan of action. In any case, the best Strategie, especially for those that are now start trading, is try to minimize the risks. So, let’s see how is it possible to trade in this way. To minimize the risks, traders usually resort to the hedging strategy. To better understand the meaning of the hedging strategy the best think is to do a pratical example. But before, it is important to remember some terms used in the trading language, that are the ‘call‘, the ‘put‘ and the ‘be in the money‘ (or ‘be out of the money‘). If a trader makes a call, this means that he presumes that the asset he is working with, is going to increase is value in a future. On the contrary, if he makes a put, it is because he feels that his value is going to fall. To be in the money, instead, means that the option chosen is worth working (sometimes it is used in the sense of make profit, even if it is not the precise definiction of the term).
All these movements are done in a fixed lap of time. So, if a trader calls an option on a currency pair or more probably on an asset that will expire in one hour, the best thing to do, before all, is to watch what is going to happen to the chosen asset in the first half of hour or forty minutes. The possibilities, in fact are that the asset moved or not in a position that allows to put in the money. In the first case (the asset put in the money), two different choices are possible: the first is that the trader simply do nothing except waiting that the trade expires. But this is not synonymous of gain. In fact is it possible that, even if in the first half hour or more the asset is in the money, in the last twenty minutes it can drops out of the money. To avoid the risk tha trader can decide to put the option before the time expires. What does it means? That if the trader realizes in the first half hour or forty minutes his option is in the money and he doesn’t want to risk any fall, he put out finding himself in the condition to be in the money in the call and out of the money in the put. the benefit of this procedure is that the trader lose only a little amount of the invesment (usually from four to six percent). If the trader doesn’t recognize the risk he can decide not to put, and there is the possibility that once the time is expired, he find himself out of the money for the call and this can led to losses uo to the eighty-five percent.
To obtain the maximum profit, the trader should find himself in the position in which the asset is under the strike point at the moment the trader makes his put option, but above the strike point when he makes the call. So doing, once the time is expired, both the options result in the money and the traders have the maximum profit.
So it is clear that to decide when and if make a call or a put, the trader should be expert. If not, the best thing to do is start with little investment to avoid great losses. In some cases that can be recognice with the practice, it can be easy to understand if the option will end in or out of the money, so that can be easy to decide when to call and when to put.