Wider access to options trading on DIY platforms has democratized an area of the market once cornered by finance professionals. Combined with more stock market chatter on social media and market volatility, options trading has gained steam with mom and pop investors.
"People hear about how great somebody on Reddit has done with a specific options trade and they want to try to do the same thing and get very, very rich, very, very quickly," Sheluk said.Options — a derivative whose value is directly linked to an underlying asset or stock — allows investors to bet on which way a stock will move in a specific time period. It's a contract between two investors.
"As the holder of that 'call' option, if the stock price goes from $50 to $60, you're pretty happy because you can now buy that stock at $55, where on the market, it would be $60," he explained. It's not so great for the seller of the option, who will have to buy the stock at market value and sell it back at the option strike price of $55.A drop in options trading fees, primarily on DIY investment platforms, has also attracted young investors to the space.
But the biggest risk with options is that an investor can lose 100 per cent of their money, Sheluk said. Investors hoping to try their hand at options trading should be well-versed in the basics of investing, Dhalech, who founded bdinvesting.org, said.
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