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My apology for the novice question: I've seen a certain number of people trading forex, future or options as their full time career, and my understanding is that they have all been through stock trading before these.

What are the pros and cons of those instruments compared to stocks that make one switch ?

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    Because you hate money and are determined to lose it. Everyone has different goals. Alternatively you may make money off convincing people these are viable investment opportunities. – Pete B. Nov 5 '19 at 19:26
  • @PeteB. I would say they are more speculation or gambling opportunities. You certainly can make money from forex... but you can also make money out of roulette occasionally. – Vality Nov 6 '19 at 0:06
  • And you can also make money by picking up from the street, yet we see noone doing that as a pro for a living. I think the question here is about why one choose to be a pro poker player instead of a pro lottery player: he knows the poker game and the tricks of it, the poker game is more predictable for him and has higher odds of winning, etc. Just to fair and as another example, there are a few pro lottery player stories because they know the odds in their favor.So the question is about that "advantage edge of forex/futures/options over stock instruments that potentially brings him better odds" – Kenny Nov 6 '19 at 15:15
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I dabbled in futures a long time ago so I'll limit my chatter to options, which I have utilized for 30+ years.

It's impossible to answer your question succinctly because there are a myriad of ways to trade options. You can be long or short. You can gamble aggressively with them and you can use them conservatively for income, as well as multiple gradations in between.

The risk involved depends on whether you’re a buyer or a seller and if the options are standalone or combined with other options and/or stocks.

For the Average Joe I'd suggest basic strategies:

  • Sell cash secured puts if you are willing to own the underlying at the strike price less the premium received. If assigned, you'll buy the stock at a lower price. If not, you'll collect some income.

  • Sell out-of-the-money covered calls if you are willing to sell the underlying at a higher target price. If not assigned, you'll collect some income, increasing your yield.

  • If you're seeking the premium income with reduced risk, sell vertical spreads so that you have the inherent protection of a long leg and a more favorable Risk/Reward ratio than naked selling. This is the equivalent of a long stock collar which can be set up at no extra cost beyond the cost of the stock, offering a modest upside profit potential and far less risk than outright ownership of the stock.

  • If implied volatility and dividend yield are moderate to low, consider high delta LEAPS as a surrogate for the underlying because of the low time decay - also called a Stock Replacement Strategy. It will have almost the same upside potential as owning the stock and much less downside risk.

More sophisticated strategies should be left to knowledgeable investors/traders.

In short, the answer depends on how you define 'trading options'.

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  • Could you elaborate on the advantages of these derivatives trading compared to stock trading ? My understanding is that stock trading seems to be an entry point for traders, as time pass there are more advanced instruments that are more "attractive" and make people move away from stocks. What is this "attractiveness" of these other instruments compared to stocks ? More stability ? More predictability ? – Kenny Nov 5 '19 at 19:58
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    Again, it depends on how and what one trades. A sophisticated trader might delta neutral trade. He might trade volatility, selling expensive near term premium against cheaper further out premium. He might chase guaranteed income with arbitrage strategies (conversions, reversals, box spreads, etc.). Pros tend to grind it out. Amateurs tend to avail themselves of the leverage and while dreaming of that big score, lose their money. If you want some insight into more sophisticated usage of options, read the discussions by former market makers and floor traders on the Elite Trader Option BB. – Bob Baerker Nov 5 '19 at 20:12
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This is why I trade options. Leverage. When I look at a stock that I feel (no guarantees, of course) is about to have a run up, options are the way to get the most leverage. I saw a potential 50% increase in this stock, and the typical investor might consider buying some on margin. 100 shares, $15000 cost, $7500 out of pocket. Stock rises to $210, a $6000 gain less margin fees. About an 80% return. For the trade above, an option spread, the out of pocket was $1050 for a potential $9000 gain. A far higher return with less at risk. Of course, in the one year, the result is a potential 100% loss if the price doesn't move at least 30% or so.

This is one strategy, the one I use most often, with enough success that the losses don't bother me. To be clear, I don't call this 'investing', but rather 'gambling', but in a way where I know the exact potential return, and with some analysis, use of Black Scholles models, the odds of these events, or at least what the market currently shows the odds to be.

(The same day I traded the above, I looked at the same type of trade a year out, to have 2 years for the stock to recover. The $240/$250 spread was priced, and filled at $1.)

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Well firstly I've know many professional investors (hedge fund portfolio managers) who traded forex, futures and options who knew little about stocks.

Some benefits of trading futures, forex and options are that they can be very liquid (but not always), and give easy access to leverage. Getting leverage for stock trading requires loans of some kind and that costs money and requires relationships/credit.

Some people think that they can predict the future prices of these instruments, and some succeed. additionally, options can provide some very creative opportunities to exploit market mispricings or ineffiencies, which simple stocks cannot.

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I will provide my main two issues rather headaches that are involved with Stocks which I gained via experience and also nicely explained by Ed Ponsi. These are

  1. Partial Fills

As the name suggests, you as a trader place an order for certain number of shares ex. 1000 shares of a stock, instead receive just a portion like 600. Meaning only 600 shares were available at that point of time at that particular price. Partial fills is a very rare scenario in Forex trading

  1. Slippages

This is the difference between estimation transaction costs and amount actually paid For example, suppose you purchased 1000 shares of stock ABC at a price of $50 per share. In order to protect yourself in the event if the price moves against you, if you place protective stop order (Sell Order - $49), so you would believe that in the worst case scenario you would lose $1 per share translating to $1000. right?. No. you would be very Wrong as the price may fall below $49 without touching the exact price of $49. In such cases, two things may happen. Either your order will not be executed at all or it will be executed in the vicinity of $49(which would most probably be less favorable most likely than you desired) and will eat into traders profit. The slippages are very rare in case of Forex trading

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