Building a solid mindset for successful options trading in the Middle East
Of the many strides made to financial inclusion in MENA, options trading has not achieved widespread success among retail investors. However, there are opportunities for this relatively new asset class to offer the region’s investors attractive returns and diversification benefits.
Options trading involves the opportunity to benefit from price movements in stocks, currency or indices without taking on the entire risk of owning them. Options are derivatives that derive their value based on an underlying instrument like a share, currency or index. They allow investors to manage risk more effectively and generate profits when the market moves in favourable directions.
You don’t need to invest in options to get started. Anyone interested in trading stocks or buying mutual funds can start small by opening a discount brokerage account and a practice portfolio. The goal of this step should be to learn the basics of how markets move, how investments work and what type of investment opportunities are available without taking on any real financial risk.
Set goals for your money
In addition to starting small, investors must think about their overall goals from an economic perspective before committing themselves to invest in options. The purpose of allocating capital should include long-term objectives such as retirement planning, building personal wealth, providing for children’s education expenses or just providing a monthly income in retirement.
If you learn about how options work, you will have an advantage over investors unaware of their benefits and pitfalls. The easiest way to gain the required knowledge is by reading books or subscribing to online newsletters to get you up to speed on everything from trading strategies to market terminology. Online financial websites are also a good resource for keeping abreast of industry news and market trends, which can help inform your decision-making process.
Find a mentor
Even if you have taken the time to study options thoroughly, it can still be beneficial to have someone available at all times for personalised advice on specific trades or general strategies. Working with a professional options trader removes the uncertainty of committing capital to specific investments and ensures you are always working towards your long term goals.
Stay in control
Once you decide to work with an options mentor, it is crucial not to lose sight of your overall financial objectives. Even though they may help you find good investment opportunities, it is still up to the investor to decide when and how much money they want to allocate towards different trades.
Always pay attention
Investors must take time every week or month to check on their portfolio’s performance against market benchmarks like indices or mutual funds. Investors must also be wary of any news-related developments that may significantly impact the direction of prices in the short term.
Don’t get greedy
No matter how successful your options trade is, taking profits at the right time is just as important as when you entered into the trade in the first place. Investors who are tempted to wait for more significant gains even though their investments are in healthy positions will inevitably see their gains slip away in a market environment where prices can reverse quickly.
Know when to cut your losses
Conversely, it is equally essential to know when it is appropriate to take a loss and protect capital. Options trading can be highly volatile, and sometimes deciding to walk away from wrong positions can help preserve capital for better opportunities down the road. Be conscious of large price swings that may signal volatility coming back into the market, especially if the news is wrong or there are no clear reasons for sudden price movements.
Even after putting up initial capital for an options trade, there are times when investors will need to put in additional funds or take profits early for any number of reasons. A good investor must deposit additional money into their account when necessary, so they are never forced to get rid of a profitable position simply because they are running out of funds just as prices are about to rise further.