Comparing Options to Other Financial Instruments
When it comes to trading and investment in general, there are many different financial instruments that can be used for potential profits. A financial instrument is essentially any tradable asset; whether it is cash, evidence of ownership in an entity, other commodities or even the contractual right to receive or deliver another financial instrument.
Stocks are probably the best known financial instrument, but there are also bonds, futures, and of course options contracts. There is money to be made from investing in, or trading any financial instrument if you know what you are doing.
If you are interested in options trading, then you obviously need to know what options contracts are and how they work. However, it also pays to have an understanding of other financial instruments and how they work by way of comparison. Even if your investment plan involves only trading options, it can still help to know a bit more about other financial instruments.
You may well decide to stick to only trading options, but you also may decide that you want to invest in other financial instruments too. In this section we compare options to the following financial instruments:
- Stocks
- Bonds
- Forex
- Futures
- Warrants
Differences Between Stocks & Options
If you were to ask how most people want to get involved in investing, then the most common answer would probably be buying stocks in publically listed companies. This is largely because buying stocks is one of the simplest ways to invest money, and anyone can do it with just a little bit of knowledge.
There is certainly money to be made from buying or trading stocks and there a number of people that do exactly that. However, when you compare trading stocks to trading options, there are some clear advantages that options offer. Please read this page for a comparison between these two financial instruments.
Differences Between Bonds & Options
Bonds are another very straightforward way to invest, and they are particularly appealing to risk adverse investors who prefer conservative, safe investments. Bonds, like options, are a form of financial contract between two parties, but bonds and options are really quite different from each other.
To learn about how they differ please click here.
Differences Between Forex & Options
Forex trading, trading in foreign currencies, has grown in popularity quite significantly in recent years, and successful forex traders can make serious amounts of money through this technique. It does, however, require a lot of time and effort and it can be a stressful and intense way to invest. Foreign currencies are actually one of the many financial instruments that can be the underlying security in options contracts, so it's possible to trade options and speculate on currencies at the same time.
However, as financial instruments foreign currencies and options contracts are not really similar at all. You can find out how they differ here.
Differences Between Futures & Options
Futures and options are two financial instruments that are commonly used by investors and traders, often for similar reasons. Indeed, there are many similarities between the two types of contracts and they are frequently confused with each other. There is, however, one particularly fundamental difference between the two.
Please visit this page to find out more.
Differences Between Warrants & Options
Lots of financial instruments are completely different from each other, while many are really quite similar. Warrants and options are two financial instruments that are alike in many respects which often leads to investors and traders assuming they are about the same thing. While they do share many characteristics, there are a couple of significant differences between the two which are important to recognize.
Please click here to learn more about how warrants work compared to how options work.