In options trading, there are some basic lessons that are the backbone of many other successful options trading strategies. How to engage in spread trading in options trading to enhance potential gains is one of these lessons.

Spread trading is a foundational tool that you should have in your options trading toolkit. It will allow you freedom and flexibility for enhanced profit and will give you defense against potential loss while reducing your overall risk. Now, let us look at this fundamental of options trading, the spread trade.

We have demonstrated how well options function in unison with a stock position. They enhance potential gains, provide profit protection and limit the risk of the entire investment. They enable us to manage risk in a single stock as well as an entire portfolio. But, as good as options are in conjunction with stocks, they can be even better when traded against each other.

Spreads are strategies that do not involve the use of any security other than another option. Their positives are that they are inexpensive, offer protection for both buyer and seller and are in effect automatically hedged trades.

Spreads can provide large percentage returns with low risk and can be entered into with small capital outlay. A spread involves the purchase of one option in conjunction with the sale of another option. There are many types of spreads. Some take advantage of stock movements while others are set up to take advantage of movements in implied volatility and even time decay. There are calendar or time spreads, diagonal spreads, ratio spreads and also vertical spreads, which we will discuss in depth here.

Spreads are more advanced and sophisticated than the strategies discussed in our beginner product ‘OPTIONS 101.’ Where certain spreads, like 1 to 1 vertical spreads, can be less risky than a buy-write, there are more variables to consider and control which makes trading the spread more complicated.

When you trade a spread you are dealing with three elements: the spread as a whole (which you can buy or sell) and its component parts - the option you buy and the option you sell.

Although the cost of most spreads is relatively inexpensive to initiate, they can provide a large percentage return and there is protection (limits) to both sides of the trade. Therefore, even experienced investors can profit from learning about spreads and their investment potential.



By: Ron Ianieri

About the Author:

Making money consistently via day trading can be difficult, and it may take considerable time to master, but it can certainly be done. If it is possible to consistently lose money day trading That is to say, it is possible for one to develop a system to consistently achieve one result How could it be impossible to achieve the flipside of the same coin? Usually, we associate trading with purchasing a commodity, bringing it home or to our business premises, and then selling it. Day trading, otherwise known as spread trading, makes you to speculate on the global stock market, property futures, indices, commodities and currencies.

Some Facts You Should Know In Day Trading:

1. Day trading is an extremely demanding and expensive task.

2. In day trading, different shares are bound to undergo different resistance and support levels.

3. The average holding period for most day trading systems is one day, from the open to the close of the stock market.

4. Day trading stock picks are chosen based on a set of strategies or methodologies, of which the most important are technical analysis, trend analysis, relative strength ranking, fractals and volumes, chart formations, and algorithms.

5. Day trading is just as much about limiting loss in any given trade as it is about making profit.

Some Benefits Of Day Trading:

1. One of the benefits of day trading is that since the positions are closed at the end of the trading day, any sudden news of events doesn’t affect the opening prices of trading.

2. Stock market day trading is a great means of making money with a little of gambling.

3. First of all, it is a safer way for people who do not have a lot of know-how in stock trading; therefore, they can easily follow their stocks during the day and sell them off as soon as they see a rise in the value.

4. The main advantage of day trading is that one’s stock positions are not held beyond the current trading day.

Some Tips For Day Trading:

1. The real “secret” of the stock market game is enclosed within the trading set ups you rely on to decide when to buy or sell a stock.

2. You need to work with an experienced day trader, need to learn latest techniques, use latest stock market investment software, subscribe to online day trading tutorial and need to devise your own trading plan.

3. Day trading stock picks are the best stock deals that are available for day trading.

4. Day trader should not believe advertising claims, which promise quick and sure profits from day trading.

5. The benefits and risks should be carefully weighed and the decision made upon an educated knowledge of day trading and just by taking chances.

The Forex Trading;

Forex Trading is the trading of world currencies. Trading in currencies is the ultimate liquid market, with volume often 50 to 100 times greater than the trading of stocks on the New York Exchange, and, because of the nature of currencies and the multiple factors controlling its value, no one has an overriding advantage or insight into the market. Day trading, despite differences in times zones throughout the world, is also popular because the forex market remains open 24 hours a day.

Trading Software:

Recognizing good trading software is an easy task, as the basic requirement is that of a data provider which will help you analyze the market before you start online trading. Many traders and investors rely too much on software’s used for these purposes, but you do not get a true picture of the market just by using these software’s, as there are many factors which constitute a stock market and some of them can only be assessed through skill and experience.

Some Trading Media:

1. While there are many day traders who do their trading using only the computer, there are others who trade using telephone and mobile phones.

2. Special software is used for day trading and is installed on all trading computers.

Day Traders Should Be:

1. Day traders are more particular with buying and selling not the bottom line.

2. In day trading, the trader does not hold stocks until the next day; instead dispose it off by the end of the day.

3. A person is considered a day trader when they can accomplish four or more day trades in a five business day period and has two unmet day trade calls in 90 days.



By: Bercle George

About the Author:

Getting started trading in the Forex market is not complicated, but there are some things you will need to do to become a successful Forex trader. The first thing you should do is make some decisions concerning the amount of capital you are willing to invest. Most brokers have a minimum, but a lot of brokers have an account minimum as small as two hundred and fifty dollars.

Once you know what amount you are willing to invest in the Forex market, the next step is to find a good broker. A good broker will be upfront about all aspects of their business, including commission, if there are any, spreads, trade executions, flexibility concerning transaction size, the allowable leverage, the currency pairs that are available with that broker for trading, the security of any deposited money, and what tools they will make available to help you with your Forex trading.

The best way to start Forex trading is with a demo, or dummy, account through the broker you chose. These accounts use paper, and they allow you to make trades without risking any money until you get familiar with the Forex market. These accounts allow you to track your trades and get comfortable with all aspects of the market with no risk. Brokers usually recommend that you do not start trading with actual currency until your trades get returns at least for a couple of trades.

One of the most important parts of getting started with Forex trading is knowing the terms and language used. Research online and learn all you can about the Forex market and the language used. Learn about the foreign currencies. Most of all, learn how to analyze the economic reports and other factors that can affect the Forex market. The learning part is a huge part of being successful on the Forex market. There are many variables when it comes to the trading markets, and by learning what these variables are and what effect they will have on the market, you will be better prepared and a better Forex trader.

Getting started with Forex trading requires some thought and pre-planning. You must first figure how much money you want, and can afford, to invest. Be realistic, and do not risk more than you can actually afford to lose. Next you will need to learn some about Forex investing. Do your homework and be prepared, and you will be a much better and more profitable Forex investor. Learn about all of the major economic reports, and learn how to read and analyse these reports to maximize your investment potential. Find a good Forex broker, and discuss things like the spread, leverage, margin rules, any commissions, and more. Find a broker that you are comfortable with and trust, because this person will control your profit margin. Most importantly, use demo or dummy accounts until you are comfortable and know what you are doing.

Copyright © 2007 Joel Teo. All rights reserved.



By: Joel Teo

About the Author:

Let’s put together what we’ve been talking about, develop an imaginary spread scenario and set it in real life events.

In October, let’s say that you begin to hear about IJK stock. It looks interesting, so you then use a variety of sources to learn about IJK: news, charts, outside analysts, internet research etc. From your investigations you decide that this stock is poised for a strong upward move and you’d like to take advantage of it.

However, each share is $50.00 and you question whether you want to put out the capital for enough shares to make the trade worthwhile.

Now is the time to investigate IJK spreads. Since you are bullish on the stock, you investigate the bullish plays of the call spreads and the put spreads. You check the pricing of both since you are aware that implied volatility and time decay will affect both your purchase price and your selling price if you decide to sell out the spread before expiration.

Let’s say that you set the spread’s maximum potential gain at $10.00 using our formula. Then you decide you want to buy a call spread, so you buy 10 IJK Nov. 50 calls and sell 10 IJK Nov 60 calls. The spread is called Nov. 50-60. The spread’s cost is $3.50, which means you pay $3500 for the trade, inexpensive when you consider that to purchase 1000 shares of IJK stock would have cost you $50,000! Now, you wait and follow the stock price of IJK. If you hold the position to expiration, you face the following losses or gains.

First, if the stock does not move up as you expected and stays at $50 or decreases in value, your spread is worthless and you lose the $3500 that you paid for the spread. Second, if the stock begins to move up, you first recoup your investment and then move into profits. After the stock has moved up $3.50 you are at the breakeven point. Every money advance after that represents profit.

The chart below represents the spread’s losses and gains and your total profit

This chart is based on stock prices at expiration Friday in November. Until then the spread’s value fluctuates between $0 and its maximum (the difference between strike prices) of $10.00

At any time until expiration, you can sell out of the spread but what you receive for the price may be influenced by implied volatility and time decay and that will change your profit or loss. If you hold the spread until expiration and your bullish lean proves true, your maximum profit on your $3500 investment is $6500.

You paid $3500 for the spread and received $10,000 at expiration with the stock at $60.00. That represents a $6500 profit which is a 186% return.

If you had invested $50,000 for 1000 shares of IJK and at expiration sold the stock for $60,000, your profit is $10,000 for a 20% return.

For many investors the reward/risk scenario of the spread is attractive because investors can limit the capital at risk and the time of risk/reward exposure. The spread also offers protection if your lean is bullish or bearish. Finally, the spread has the potential of a large percentage return on investment.



By: Ron Ianieri

About the Author:

To be able to calculate the volatility of the spread, we must equalize the volatilities of the individual options.

First, let’s move the June calls by moving June’s implied volatility down from 40 to 36, a decrease of four volatility ticks. Four volatility ticks multiplied by a vega of .05 per tick gives us a value of $.20. Next we subtract $.20 from the June 70 option’s present value of $2.00 and we get a value of $1.80 at 36 volatility. Now the two options are valued at an equal volatility basis.

Looking at this first adjustment where we moved the June 70’s volatility down to 36 from 40, we have a value of $1.80 at 36 volatility. The August 40 call has a value of $3.00 at 36 volatility. So the spread will be worth $1.20 at 36 volatility.

If you wanted to move the August 70 calls instead, you would take the August 70 call vega of .08 and multiply it by the four tick implied volatility difference.

This gives you a value of $.32 that must be added to the August 70 call’s present value in order to bring it up to an equal volatility (40) with the June 70 call. Adding the $.32 to the August 70 call will give it a $3.32 value at the new volatility level of 40 which is the same volatility level as the June 40 calls.

Now, our spread is worth $1.32 at 40 volatility. August 70 calls at $3.32 minus the June 70 calls at $2.00 gives the price of the spread at 40 volatility.

It does not make any difference which option you move. The point is to establish the same volatility level for both options. Then you are ready to compare apples to apples and options to options for an accurate spread value and volatility level.

Since we now have an equal base volatility, we can calculate the spread’s vega by taking the difference between the two individual option’s vegas. In the example above, the spread’s vega is .03 (.08 - .05). The vega of the spread is calculated by finding the difference between the vega’s of the two individual options because in the time spread, you will be long one option and short the other option.

As volatility moves one tick, you will gain the vega value of one of the options while simultaneously losing the vega value of the other. Thus the spread’s vega must be equal to the difference between the two options vega’s. So, our spread is worth $1.20 at 36 volatility with a .03 vega or $1.32 at 40 volatility with a .03 vega.

Going back to our original spread value of $1.00 with a vega of .03, we can now calculate the volatility of that spread.

We know the spread is worth $1.20 at 36 volatility with a vega of .03. So, we can assume that the spread trading at $1.00 must be trading at a volatility lower than 36.

To find out how much lower we first take the difference between the two spread values which is $.20 ($1.20 at 36 volatility minus $1.00 at ? volatility). Then we divide the $.20 by the spread’s vega of .03 and we get 6.667 volatility ticks. We then subtract 6.667 volatility ticks from 36 volatility and we get 29.33 volatility for the spread trading at $1.00.

We can also determine the volatility of the spread as the spread’s price changes. Let’s fix the spread price at $1.30. To calculate this, we must first take the value of the spread ($1.20 at 36 volatility) and find the dollar difference between it and the new price of the spread ($1.30). The difference is $.10. This dollar difference must now be divided by the vega of the spread. The $.10 difference divided by the .03 vega gives you a value of 3.33 volatility ticks. Then add the 3.33 ticks to the 36 volatility and you get 39.33 as the volatility for the spread trading at $1.30.

Let’s double-check our work by calculating the volatility the other way.

This time we will do the calculation by moving the August 70 calls up to the equal base volatility of the June 70 calls. As calculated earlier, the August 70 calls will have a value of $3.32 at 40 volatility.

The June 70 calls are worth $2.00 at 40 volatility. Thus the spread is worth $1.32 at 40 volatility.

Now let’s again move the spread price to $1.30, $.02 lower than the value of the spread at 40 volatility. As before, we take the difference in the prices of the spread. The result is $.02 ($1.32 - $1.30). Then, divide $.02 by our spread’s vega of .03 (remember that the vega of the spread is equal to the difference between the vega of the two individual options). $.02 divided by .03 gives us a value of .67. That .67 must be subtracted from our base volatility of 40. That gives us a 39.33 (40 - .67) volatility for the spread trading at $1.30. This volatility matches our previous calculation perfectly.

At first glance, you might be wondering why we went through all of these calculations. With the June 70 calls at 40 volatility, price $2.00, vega .05 and the August 70 calls at 36 volatility, price $3.00, vega .08 why not just take an average of the volatility? This would give us a 38 volatility for the spread with a price of $1.00 when in actuality $1.00 in the spread represents a 29.33 volatility.

This would be almost a nine tick difference which represents a whopping 30% mistake! Because, as stated earlier, vega is not linear; you can not weigh each month evenly and just take an average of the two months. For argument’s sake suppose you did. Let’s say you found the difference of the vegas of the options and came up with a spread vega of .03 which is correct. However, when you try to calculate the spread’s volatility and price you would have difficulty.

Now, recalculate the spread with the trading price of $1.30, or $.30 higher than your value at 38 volatility. Divide that $.30 higher difference by the spread’s vega of .03. You get a 10 tick volatility increase. Add that increase to the base 38 volatility. That would mean you feel the spread is trading at 48 volatility instead of a 39.33 volatility! This type of mistake could be very, very costly. Remember, apples to apples, oranges to oranges. It doesn’t matter which option’s volatility of the spread you move as long as you get both options to an equal base volatility.



By: Ron Ianieri

About the Author:

There are lots and lots of FOREX currency trading platform online these days and it is hard to choose the best from all these trading platforms. The most important criteria you need to know when choosing these trading platforms are the competitive spreads. The more competitive spread these platforms have the better. So what are spread? A spread is the difference between ask and bid price. The smaller the difference, the spread is more competitive. Competitive spread usually ranged around 3 to 5 pips.

The second most important criteria you need to know is the transparency of the FOREX currency trading platform. Sometimes they might charge you extra and you might not even know it. They are not trying to cheat you. Sometimes there are just errors and I’m sure you don’t want to lose money and pay extra just because of all these errors.

If you’re a beginner at trading FOREX, look for a trading platform that give away free EBook that teaches you ways to trade FOREX. Don’t look for a trading system that only teaches you how to use their software. Make sure this EBook shows you everything you need to know to start trading FOREX. Also make sure that it provides a professional study of the most popular techniques implemented today by FOREX traders worldwide. Other than that it should contain useful and valuable background, including technical methods, trading tips, FOREX glossary, chart reading, and financial indicators used in Fundamental Analysis.

Don’t use a FOREX currency trading platform that has complicated software. I’m sure your time is valuable and you will not want to waste few hours of your time to master how to use the software. Some software is easy to use and the functions are as powerful as the complicated ones. Be sure that you choose the right FOREX currency trading platform or you’ll lose both your time and money substantially. Take at least few days to determine which trading system has the best offer.



By: Han Ming

About the Author:

An investor must always keep in mind that vertical spreads have an intrinsic value. This means it is possible to consider them ‘in the money.’ If a vertical spread has an intrinsic value, it can also have an extrinsic value. Unlike maximum intrinsic values that equal the difference between the strikes at expiration, maximum extrinsic value deviates from spread to spread based on several factors.

During a vertical spread’s life, its price will fluctuate between zero and the value of the difference between the two strikes. An investor can determine the price of the spread, at any given time, by the location of the stock and the time until expiration.

At expiration, what remains for the two options is the intrinsic value of each. Therefore, the value of the spread is the difference between each option’s intrinsic values at expiration.

Because vertical spreads have an intrinsic value, the term ‘moneyness’ applies to them. Moneyness refers to whether or not and by how much an option, or a vertical spread, may be in the money or out of the money. This is a term used mostly by floor traders, but is still worth noting here.

Vertical Call Spread and Vertical Put Spread Value

Spreads with intrinsic value are considered in the money. How can you identify the value of a vertical call spread or a vertical put spread? Compare the stock price to the strike prices.

Look at any vertical call spread. If the stock price is above the lower strike of the spread, the spread is in the money. In the Feb. 50 - 55-call spread, if the stock is trading at $52.00, then the spread would be in the money by $2. This is because if the spread expired today, the Feb. 50 calls would finish $2.00 in the money. The Feb. 55 calls would finish worthless because they are out of the money. The spread, however, would be in the money with a value of $2.00.

The rule is similar for determining whether or not a spread is out of the money. If the stock price is lower than the lower strike of the spread, the spread is out of the money. Again, looking at the Feb. 50 - 55 call spread, if the spread expired today and the stock price closed at $48.00, (lower than the lower strike) then the spread would be out of the money, thus the spread will be out of the money. If the stock is trading at the same price as the lower strike price, the spread is considered at the money.

For vertical put spreads, a spread is determined to be in the money if the stock price is lower than the higher of the two strikes of the spread. For example, look at the Sept. 40 - 45 put spread. If the stock closes at $42.00 on expiration day, the Feb. 45 put would end up in the money and worth $3.00. The Feb 40 puts would be out of the money creating a $3.00 intrinsic value for the spread. Since the spread has an intrinsic value, it is in the money.

A vertical put spread is out of the money if the stock price is higher than the higher strike of the spread. So, going back to our Sept. 40 - 45 put spread example, if the stock was to close at a price of $46.00 (higher than the higher strike) then both the Sept. 40 and 45 put will expire worthless. Thus the spread will be worthless and out of the money.

A vertical put spread is considered at-the-money when the stock price is equal to the higher strike price.



By: Ron Ianieri

About the Author:

I am an active trader of option credit spreads on the SPX, NDX and RUT broad based stock indexes. I am very conservative and only enter into trades that have a very high probability of being profitable. I write OTM Bull Put Spreads first. During months when the market is moving sideways or slightly up, I add OTM Bear Call Spreads to create Iron Condors. My goal is to collect premium month to month. I want all my spread trades to expire worthless.

I like trading the Indexes because they are not subject to the same wild price swings as individual stock. It is also easier to make risk management adjustments on Index trades than say GOOG which can change in value quickly on some bad news.

An option credit spread is a limited risk option trade involving the simultaneous purchase and sale of two differing option contracts on the same Index, i.e. the SPX. This produces an immediate cash credit in your trading account. A profit is realized in a credit spread position if the index moves in the direction anticipated, remains the same and even if under appropriate circumstances the index moves adversely to your position.

Benefits of Index Credit Spread Trading

• Index credit spread trades have a 90% probability of expiring worthless when filled.

• These credit spread trades can profit in any type of market. Markets today are more likely to trend sideways, or move slightly higher or lower month to month.

• The majority of time you just make a trade, collect your credit and wait for the next month. This is not a day trading system. There is no need to monitor the market and your active trades all day long in front of the computer screen. In fact it’s really a very boring trading system.

• Paper trading is the best way to learn this option strategy. It’s all free with CBOE’s new Virtual Trading system.

• The SPX, NDX and RUT Indexes are not subject to the same wild swings as individual stocks.

• With Iron Condor trades you get double the credit but only have one margin side at risk.

• You want your credit spread trades to expire worthless but you can always buy them back for way less than you sold them for.

• Your trading capital is only used to support margin requirements. Most option brokers allow you to invest your trading capital and use it as collateral for spread trading. This way you can earn 2 returns with the same capital.

You can see my actual performance results of all trades for the last 12 months and the current YTD return which is amazing. My website is over 25 pages and full of content that covers all aspects of this trading strategy.



By: Brad Griffin

About the Author:

This is the first in a series of insights into trading the forex markets successfully. We have ten keys to trading success that all new forex traders and certainly many experienced forex traders need to learn and need to know. We’ll start with the top three with the rest detailed in the rest of this series.

11. Commission Free Trading

This was the initial sales pitch most brokers used and many still do. “You’ll trade for free – no commissions!” Well, any of us who trade actively know commissions add up to some ungodly amounts – many times you look at your annual statements if you trade actively and it’s not uncommon that your broker makes more, maybe much more, than you do in your trading profits. Forex trading is not commission free. Sure, there is usually not an “add-on” commission. However, they force you to pay a spread on every trade. You have to always buy at the ask and always sell at the bid. This is not the case in stocks, or futures or really any other market.

This forced spread on every trade is a commission. That’s what it is. Despite what the broker might claim. And that forced spread is not cheap. 3 pips is $30 on a just one full sized pair. Try $50 on a 5 pip spread you still see as commonplace.

Now, compare that to your average futures or stock trade. Which is more? Forex usually by far.

Now, let’s not leave it at that. Remember, you get some amazing leverage opportunities with Forex so the actual commission compared to the dollar volume you are able to trade is actually reasonable in some cases – assuming you trade at the right places and follow the right strategies. We’ll cover that below.

12. 100:1 Leverage…No, Wait! How about 200:1….or 400:1?

You’re going to be rich! With that kind of leverage you make just a few pips per days and you’ll spend as much time with your banker as you do with your significant other, right? You look at the end of month totals from your strategy, run it through your state of the art Leverage Calculator and instantly you are making 100%, 300% or 500% per month. Do that a few months, a bit of compounding and you’ll be buying that private island after all.

This is another one of those broker come-ons. It just doesn’t work this way. Yes, you can get this leverage. The brokers are going to allow it so I’m not saying it isn’t as advertised. However, you are guaranteed to wipe out using it. Guaranteed. There simply is no way you can trade at these leverage levels and make it. Not unless you are some trading genius who can take a trade and never lose. If you are – please contact me at once!

For the rest of us, you are going to lose. You are going to lose more than once. You are going to have some losing streaks. It’s the nature of trading. It’s not a big deal, especially if you can win more than you lose, and if your average win is greater than your average loss. You do that and who cares about some losses. Don’t get hung up on it.

However, you will care very much if you over-leverage. Do not over-leverage! This is the single, greatest mistake most new Forex traders make. Your state of the art trading calculator spits out numbers that are too great to pass up and you let greed get in the way of logic.

Think about it this way. 200:1 leverage.

You have a trade where you are targeting 25 pips and risking 25 pips. As you’ll learn below, that trade actually has to go 28 pips or more to hit your target of 25 pips and you’ll actually be risking 28 pips or more – but for this example we won’t get hung up on that. We’ll solve that later.

You have a $5,000 account and trade it with 200:1 leverage. That means you can trade 1,000,000 worth of currency (you can see why we said spreads above are a significant cost but with leverage can end up being a small percentage of cost) – and that means 10 full sized pairs.

Oh, and you lose on this trade. Let’s do the math. 10 pairs x 25 pips = 250 pip loss. Make that with spread 10 pairs x 28 pips = 280 pips loss x $10/pip = $2800 loss.

Oops. You’ve just lost over 50% of your account. Don’t even think about what would have happened if you were risking more – and these days on the Forex, good luck risking much less.

If you lose twice in a row – which happens all the time - you’ve just wiped out. Sure, if you win you make a great return, but you are completely counting on virtually never losing. Even if you get a few wins immediately, you’ll eventually wipe out.

It’s what happens to the new gambler in Las Vegas. They try a few hands, they win, they get sucked in, and then before they know it they are at their ATM machine looking for their mortgage money to try and get back that winning feeling.

You’ll have success trading with huge leverage. Some of the time. It will be great and you’ll brag to your friends how you made 50% that afternoon. Then, a few days later you’ll be asking them to pick up the lunch tab.

Do not use crazy leverage. Do not use crazy leverage. Do not use…ok, you get the idea.

Decide on a fixed percentage you are going to risk on your account on any one trade. 5%? 10%? And calculate that amount to determine what size you can trade based upon the risk per trade. It will still be great leverage – Forex provides that. What’s wrong with 5:1 leverage or 10:1 leverage? It blows away the stock market but it’s not going to wipe you out in a couple of trades.

13. Spreads

Find a broker that does not charge high spreads. Sure, you need a broker who provides a stable platform, which provides good customer service, which is regulated (important!), that has account insurance/guarantees, and so on. But realize these brokers make money many different ways. They make spread money, they make money by laying off orders on other banks, they make money on stop running. Did I say that? Guess it’s too late to take it back.

There is simply no reason to pay more than 3 pips on the EURUSD. And really, you should be paying 2 pips. On the GBPUSD and USDCHF why are you paying 5 pips? Sorry, it’s not going to a charitable cause – your broker’s bank account isn’t a non-profit. Those spreads are crazy. You should pay 3, maybe 4 at most on the other majors.

There are new trading platforms coming out in recent months, some based upon the “Currenex” platform that basically takes your orders direct to the “real” trading market and your broker only takes a small commission on the trade, closer to the model we see in stocks and futures. Or they are mimicking the Currenex platform and developing on that works similar. Look for this; it is important to have liquidity and low costs.

And forget about all the “exotics” – avoid trading anything that is not amongst the main pairs – EURUSD, USDCHF, GBPUSD, USDCAD, AUDUSD, USDJPY, EURJPY and maybe EURGBP. And stay away unless spread is 2 or 3 pips, maybe 4. That’s already more than enough to trade so why do you need to trade the GBPCHF for 15 pips spread? Unless you really like to make car payments and pay for rounds of golf for your broker. If you do see a compelling reason to trade, for example, the GBPJPY - and there are some great moves there - just be sure you are building the spread costs into your trading outcomes – you might need it to go 7 to 10 pips just to get break-even, let alone to start making a profit.

The rest of this important top 10 with critical insight into ensuring your forex trading success can be found here: http://www.netpicks.com/BetterTrading.html



By: mark

About the Author:

Paper trading using one of the many virtual trading systems provided by option brokers, and now CBOE, is so important if you have never traded options. This is especially important trading credit spreads, like Bull Puts and Bear Calls and ultimately Iron Condors. These are special strategy trades that must that must be fully understood before trading with your own funds. You must practice entering, closing and adjusting Bull Put and Bear Call spread trades. You must fully understand an Iron Condor trade and the requirements for making sure your broker only applies margin to one side of this 4 legged trade. And most important you must practice closing these spreads and rolling to new spreads when trades go against you.

I paper traded for six months using OptionsXpress’s virtual trading system before using my own funds. This is the system now used by CBOE so new traders no longer need to apply for a brokerage account to paper trade using a virtual account.

To get started you should establish a virtual trading account with your broker or just use CBOE’s free system. You must practice all types of credit spread trades like:

1. Entering new trades using the current bid.

2. Entering new trades using limits that are higher than the bids, like one half of the bid/ask or midpoint. Then shave 5-10 cents off this midpoint.

3. Enter stop loss orders to close profitable spread trades for 10 cents or less freeing up margin for new trades.

4. Practice adjusting Bull Put and Bear Call credit spreads. You should close and roll to new credit spread trades to collect another credit. This is the most important one to practice and master before committing your own funds.

The 4 types of trades above should be practiced many times over for a period of 2 to 3 months. Never enter into one of these specialty options trades using your own funds until you completely understand all the risks. You must have an exit plan and know exactly what to do when a trade goes against you.

Once of the huge advantages you have with option spreads is that you can break even when a spread trade has to be closed. This is accomplished by adjusting, or rolling, to a new spread trade to collect a new credit. Sometimes this new credit offsets, or exceeds, the debit you incurred closing your original spread. This is a key risk management procedure that you can master paper trading. Once you complete a few of these rolling trades you will really get excited about trading credit spreads and be able to protect your monthly cash flow so that you are always adding net credits to your account.



By: Brad Griffin

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