The Newbie Trader’s Quick Guide to E-Mini, Forex, Stock and Options

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If you’re learning about investment trading, you most likely have a lot of questions. Many terminologies must be grasped before you can understand how one type of trading differs from another.

Stock and Options

Stocks, options, e-minis, and forex trading have their respective nuances. Once you have a sense of them, you may favor one over another or perhaps try your hand at all. There’s no right market to trade, just as there is no one trading style that meets the needs of all traders and market conditions.

Stock trading

A stock trader refers to an individual or firm that trades equity securities. They may operate as an investor, agent, arbitrageur, hedger, or speculator. An investor in stocks purchases equity securities that may result in returns in the form of income, interest, or an increase in value (usually referred to as capital gains). This buy-and-hold strategy over the long term is passive in nature, as opposed to speculation.

E-Minis

E-Minis was introduced back in 1997 as futures contracts for various indexes, commodities, and currencies. They are available from Sunday afternoon to Friday afternoon. Some E-mini contracts feature trading advantages that include higher liquidity (and therefore a tight spread) and greater affordability for individual investors due to lower margin requirements than full-size contracts. Some new investors favor E-Minis because of certain tax advantages under U.S. law associated with this type of trading.

Forex trading

The foreign exchange market (forex, FX, or currency market) is a global decentralized mechanism for the trading of currencies. Many traders are attracted to the forex market because of its high liquidity, around-the-clock trading, and leverage available to participants.

It differs from straight stock trading because Forex trading involves more volatile stocks instead of investing in well-established, financially sound companies. This can appeal to the more aggressive trader who enjoys, the greater challenge of finding a profit in a more high-risk environment.

As such, many short-term traders gravitate toward Forex markets, while buy-and-hold investors tend to prefer the stability offered by Blue Chip stocks.

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Options

Options offer enhanced security for the newbie but flexibility as well. They can be used conservatively or with high risk.

When newbie stock traders first tackle options, they usually purchase calls or puts for directional trading. Options are a great move when a trader is confident the stock price will move in the direction he likes to make money.

Additional education

The above breakdown covers the basics of these four types of investments. If you would like to learn more, Trading Concepts offers mentoring programs.

While each course is customized for the trader, the E-Mini Futures course is primarily used for day trading. The Forex course can be used for either day trading (during the day or night) or multi-day to swing trading.

The Stock course mainly focuses on swing trading (i.e., 2-5+ day swing trades), and the OptionsMD mentoring program is geared toward monthly income (i.e., two to four-week trades).

In trading, as in life, the most important element may be risk tolerance and trading style. For example, buy-and-hold investors are often more suited to the stock market, while short-term traders, including swing, day, and scalp traders, may prefer markets where price volatility is more pronounced.