OptionsHouse Review

Is Optionshouse Good for Beginners?

Is Optionshouse a good company to invest with? Online broker guide to novice investors on how to buy stock, mutual fund, and ETF in 2015.

Optionshouse Promotion for 2015: Trade Free For 60 Days when you Open a New OptionsHouse Account

Is Optionshouse good for beginners?

Being financially active and literate person, you've decided to become an investor. Regardless of which type of investor you are, there is plenty of information to help you succeed in investing or trading.

At the beginning, investor has to determine the range of his preferences in the financial market. There are plenty different instruments to achieve brilliant outcome or goof. Let’s look at the main instruments, get acquainted with trader’s vocabulary and look at the selection criteria for choosing a brokerage firm not to get lost among various assets and choose really deserving.

Basic instruments

Shares/stocks/equities of various companies. Capital stock represents the size of the equity position of a firm and can be found on the balance sheet (or notes) of a typical financial statement. Stocks strengthen the rights of its owner to get partly profits of the company in the form of dividends, to participate in the management of the company and on the part of assets remaining after liquidation. Other words, when you buy some stocks, you buy a part of the whole company. Shares can be ordinary or preferential, usually investors deal with ordinary shares.

Options and futures. Both instruments are derivatives; its price is formed on the basis of one or more underlying assets. The derivatives are just a contract between two or more parties. Derivative’s value is determined by fluctuations in the underlying asset. The main underlying assets are stocks, bonds, currencies, commodities, and market indexes. Usually derivatives differ by high leverage.

Mutual funds. Mutual fund is the basket of stocks and/or bonds in which numerous investors place their money. As a result investors receive fund’s stocks reflecting total value of set of fund’s assets. Mutual funds are traditional recourse for long-term accumulation and savings. They have some advantages over other assets: - diversification: the main idea of existence of mutual funds is risks’ reduction through the presence of various assets in portfolio. Portfolio is sufficiently diversified if there are at least 30 different assets. It’s quite expensive for individual investor to secure such miscellaneous portfolio independently; - liquidity: investor can convert mutual fund’s stocks in cash at any time when the market is open; clarity: buying and selling of mutual funds’ stocks are as simple as usual equity. Despite of all pros, mutual funds are rather a way to preserve than earnings.

ETFs. Exchange-traded funds have become an optimum instrument for investments which combine the best features of shares and mutual funds. Like stocks, ETFs trade on an exchange, can be bought and sold when market is open. Like mutual funds, ETFs are set of securities. Investors face with many types of ETFs that dynamic tends to follow variation of numerous asset classes, different indexes, markets such as fixed-income securities, commodities, currencies, real estate, and equities traded in emerging or developed markets. Furthermore there are a lot of ETFs which are traded with leverage and funds with the back returns.

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Brokerage terminology and principles

Long and short positions. Taking ‘long position’ means investor buys an instrument with the further goal to sell it later to get financial result. Such strategy works on bullish market when investor hopes for stocks’ growth (picture #1). In case investor is negatively predisposed to the whole market or specific shares, he can perform the opposite transaction called ‘short selling’. For instance, you expect that Google’s stocks (GOOG) will fall in the nearest future, namely you don’t believe in its growth and want to make money on this decreasing. So you firstly sell stocks and later buy them again at the lower price on the market (picture #2). For making such transaction you rent stocks from your broker and pay him some fee, after further purchase you return shares to company. In case you receive loss, you obliged to return shares to broker any way (he isn’t interested in its price, just quantity).

Short and long-term investment goals. Success in stocks’ trading means, in the main, to get positive difference between purchase and selling prices’ on the short-term periods of time. For long-term periods of shares’ possession dividends become to play a major role. Dividends are a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. 

Consecution of definite strategy. Successful trading demands following concrete strategy: what instruments, when and why you trade; what market conditions are favorable or adverse for your positions; what corporate and market events effects your trading. Rambling trading cannot bring benefit on a permanent basis. Conversely an elaborate strategy leads good results matter you are daily trader or portfolio investor.

Technical and fundamental analysis. Usually speculative traders operate positions on the short-term periods from several seconds to several days. They choose stocks and derivatives (futures and options) which are actively traded, and besides the fundamental basis of such instruments doesn’t matter. Speculative traders use charts and technical analysis instruments to dissect assets prices’ dynamic to provide further expectations on the basis of previous movements. Conservative investors are eager to get long-term solid outcome through clear assets with strong fundamental justification. Such factors include: period of the activity of the company-issuer; its financial performance; company’s market reputation; state of the company’s industry; development prospects; general market conditions. Thus active traders choose active instruments with great price’s dynamic and make money on it; conservative investors create diversify portfolios to avoid long-term market’s hazards. Investors can combine speculative and portfolio’s approaches in their strategy with orientation on different time periods, and even use different accounts for this.

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News background. Everyday company’s news effects on its securities’ price. There is even an expression ‘trading news’. The key news for investors include: yearly and quarter financial reports; changes in the board of directors; new products/services launches; mergers and acquisitions in the company. Everyday news background shouldn’t distract you from weighted decision-making, however omission of important news is fraught with a lack of monitoring the portfolio. For instance, unsuccessful launch of new operational system Windows 8 from Microsoft lowered its shares on several percent in one day session (picture #3), and speculative traders could made some quick money.

Selection of brokerage firm

Choosing reliable brokerage firm. As portfolio formation rather as active trading require trustworthy brokerage firm for unimpeded activity. You need brokerage firm with obvious and convenient platform, intuitive interface, stable connection, multifunctional trading system and reasonable commissions. Option House brokerage firm fits all its conditions.

How to start? Go to the Optionshouse site, register with your own login and password, start trading. Read our guidelines for work in Option House platform and achieve success.

Updated on 7/24/2015.

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