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Trading contracts on Robinhood can be a lucrative way to invest your money. Contracts are derivative securities that allow traders to speculate on the price movements of an underlying asset. They are an excellent way to trade without the need for large amounts of capital. If you`re new to trading contracts on Robinhood, here are some key things you need to know:

1. Open a Margin Account

To trade contracts on Robinhood, you need to have a margin account. A margin account is a type of brokerage account that allows you to borrow money from the broker to trade securities. This type of account is essential for traders who want to trade contracts since they require a margin to trade.

2. Learn the Terminology

Before trading contracts, it`s essential to understand the terminology used. Here are some of the most commonly used terms:

– Call option: An agreement that gives the buyer the right to purchase the underlying asset at a predetermined price.

– Put option: An agreement that gives the buyer the right to sell the underlying asset at a predetermined price.

– Premium: The cost of the option.

– Strike price: The price at which the underlying asset can be bought or sold.

– Expiration date: The date on which the option contract expires.

3. Choose Your Option

Once you understand the terminology, it`s time to choose your option. There are two types of options: call options and put options. Call options are used when traders believe that the price of the underlying asset will increase in value. On the other hand, put options are used when traders believe that the price of the underlying asset will decrease in value.

4. Place Your Order

When you`re ready to place your order, navigate to the options trading section of your Robinhood account. From there, select the option you want to trade, enter the strike price and expiration date, and choose the number of contracts you want to buy. You`ll also need to enter the premium you`re willing to pay.

5. Monitor Your Trades

As with all investments, it`s essential to monitor your trades and adjust them as necessary. You can track your trades in the Robinhood app and make changes as needed.

In conclusion, trading contracts on Robinhood can be an excellent way to make money with limited capital. However, it`s crucial to understand the terminology, choose the right option, and monitor your trades regularly. With practice and experience, you can become a successful options trader.

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