• Currency Options

    Currency options trading system that has a great track record with proper risk management, but first… Here we go again, into the world of Forex trading – this time we’re going to talk about currency options, and what’s that about. So we might as well get comfortable and begin.

    You need to have a general understanding of the Forex market of course. Here you can find the Forex trading school and  Take a quiz on how much you know about the Forex.

    Currency Options Offer Unique Opportunities For Investors

    Like any other option, currency options give the owner of the option the right, but not the obligation to buy or sell currency (the underlying asset of the derivative) at a predetermined rate of exchange during a predetermined time frame. A Forex option broker will handle the transaction and you pay the premium to him. The premium is determined by the number of option contracts being traded.

    Trading currency options is a good way to hedge yourself against currency exchange rates that might move against you. You can hedge against foreign currency losses by buying a currency option put or call. Okay, let’s think about this. If you think that the US Dollar (USD) rate against the Euro (EUR) is going to increase, you would want to buy a call option USD/EUR so that you will profit from any increase in the exchange rate of the currency options (meaning the USD will increase in value and the Euro investors will have to pay more to buy USD’s).

    Remember, you have the right to buy the underlying asset of the derivative (option). You are not obligated to, but you have the right to. In this case, you would have the right to buy whatever currency options you have pair optioned at the increased exchange rate.

    Traditional traders are put off by the term currency option trading. I know I am. But since writing this article and others on the subject of Forex trading, I’m looking forward to getting involved in currency options.

    Here is a list of brokers who offer online currency options trading:

    Interactive Brokers

    GCI Trading
    MAN Direct

    Day Trading & Swing Trading Ideas For Currency Options

    Currency option trading is not as complicated as you have heard. When you expect the value of our dollar (USD) to grow stronger against another country’s currency, let’s say Japan, there is a way to capture the growing divide. You might believe Japan’s currency options will lose value because of the tsunami devastation. You would want to invest in an option that will allow you to buy a currency pair (USDF/YEN) at a predetermined price within a predetermined period.

    Now, in the case I just outlined, both the buyer of the currency options and the person who accepted the purchase can both win. When you buy a stock you pay what the price is at that moment and now you own the stock. When you buy a currency option you have purchased the right to purchase the underlying asset within the date and at the price originally agreed to. Now, if the USD or the YEN do not move in the direction you wanted, all you have lost is the price of the predetermined premium (which you set). The person who accepted your offer of course keeps your premium. Your risk was dramatically lower than other trading styles.

    Currency option trading is definitely something you can learn. It may not be your cup of tea, but don’t be intimidated and assume it would fly over your head. If I absorbed most of it, then you can too. You may be surprised what kind of results you can achieve by trading currency options.

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