The stock market doesn't completely revolve around stocks. Yes, purchasing stocks allows a buyer to own a piece of a company. If the company does well it's stock's value increases. The company suffers the stock's value decreases. The goal is to buy stock at a low price in a company with a promising future then sell when the company reaches a peak. This is how one can maximize profit. However, there is another important element of the stock market called stock options. Trading stock options involves a contract which allows a trader to buy or sell the stock at a determined price by a certain deadline.
Trading stocks is more risky than trading stock options. With stocks, everyone that owns the stock wins together or loses together and the sum is unknown until the sale. If you are trading options everyone is betting for themselves and against everyone else. If you gain a certain amount that means someone else lost that exact amount to you. It is also known as a zero-sum game.
Trading stock options is more complex than trading stocks. With trading stocks it's all just luck combined with faith mixed with a little bit of understanding of the company you are about to invest in. You do this in hopes that the company prospers and the value of your stock increases. With trading options there is an additional step not required of stocks. A broker has an application form which they must have the potential option trader complete. This form shows the experience and understanding the potential trader has, and the broker is to use that information to appropriately guide them. If a broker allows an inexperienced trader to trade on a level not suited for them and that trader loses a substantial amount of money, the broker can be held accountable.
Stock trading and options trading occurs within different exchanges. Trading stocks takes place in the Nasdaq Stock Market, the New York Stock Exchange or the American Stock Exchange. Trading stock options occurs on 5 exchanges, Chicago Board Options Exchange, the American Stock Exchange, International Securities Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange. A stock can only be listed in one of the three of it's exchange but an option can be listed in all 5 of it's exchanges.
Trading stocks is the traditional, well known way to deal within the stock market. Another way to potentially profit is by trading stock options. Now that you know the difference between them, perhaps you know which one you'd like to pursue.
