• Forex Options

    We’ll show you how to profit with forex options.  Now we’re going to get into the thick of things. What are Forex Options and why would I want to trade them? How would I go about it? Where do I start? Let’s take it one step at a time. We’ll learn together as we explore options trading in the Foreign Exchange market (Forex) or (FX).

    Options are a versatile and highly used instrument of trading. You already know that all options are a derivative of an underlying asset. Some are simple as stock options and others are more complicated, like Forex options. The same attractiveness of using options trading to limit risks and increase profits is still at play trading Forex options.

    Tips and Ideas To Capture Gains With Forex Options

    Most investors think of options as a style of trading the stock market, but there’s more to trading options than that. The Forex (Foreign Exchange) (FX) also allows you to trade options. Options are a derivatives that, when traded properly, lower risk and increase gains, but first let’s talk in general about the Forex.

    • Forex Trading

    I’m going to assume you already recognize the value of option trading and how these derivatives can certainly increase your trading success, so let’s spend a couple of minutes discussing the Forex in general.

    The Forex is simply direct access trading of different types of foreign currencies. Until recently the only Forex traders were financial institutions; now you can also participate, thanks to the internet and fast computers. There’s a lot of opportunity in the Forex, so you should at least give it a looky look.

    The world’s currencies are on what is referred to as a floating rate of exchange. Trading the different currencies is always done in pairs (USD (US Dollar)/Yen, Euro/USD, USD/CHF, USD/GBP, etc.). But the four major currency pairs are:

    • Euro/USD
    • USD/Yen
    • GBP/USD
    • USD/CHF

    The Forex market never closes, how could it? Currency never stops being exchanged. Transactions are handled by major banks or large Forex broker houses.

    Do it yourself Forex options trading school.

    Types of Forex Options

    • Call and Put

    There are basically two types of Forex options and both of them trade in contracts. Most common is the familiar call and put options. Forex option trades are handled in ways similar to stock option trades. This type of option has lower premiums than SPOT options.

    Forex Options Trading Can Be Used As a Hedge Or for Speculation

    The popular Forex call and put option gives the owner of the contract the right, but not the obligation, to buy or sell the underlying asset at a set price at a predetermined date (expiration). Now, unlike traditional option trading, the currencies represented are traded against each other. That means that if you buy a call option on one currency, you are simultaneously buying a put in the opposing currency.

    • SPOT

    The second type of Forex option trade is the single payment option trade (SPOT). There is more flexibility available to the trader. SPOT options have higher premiums than other Forex options. SPOT options are actually easier to set and execute than call put options, especially if you are new to Forex option trading.

    Forex options are traded OTC (over the counter) and are by and large unregulated (although that is changing). Traders can choose the price and date of expiration. An order to trade with the criteria you choose is sent out and you will receive a premium notice indicating the price or premium you will be required to pay to obtain the option.

    Additionally, brokers divide Forex options further:

    • American style – which can be exercised any time until expiration (allowing more flexibility); and
    • European style – which can be exercised only at the time of expiration.

    Reasons the Pros Like to Trade Forex Options

    • Your maximum risk is limited to the option premium that you paid to buy in;
    • The upfront money is less for an option than the same cash Forex position;
    • Your profit potential is as far as you can take it;
    • You set your own price and expiration date (where else can you do that?);
    • Each type of option has a variety of choices in setups;
    • Current world-wide events are sure to bring volatility to the Forex and you can use that to your advantage;
    • Forex option trading is an excellent hedging choice.

    The Other Side of the Coin

    I write equal opportunity articles, so I’m going to list some reasons that Forex option trading is not so attractive to some:

    • SPOT positions are tricky in that you cannot change anything – if you buy in, you can’t sell it;
    • The premiums are not easy to calculate by matching to the strike price. The amount you can win or lose is not so easy to determine.

    Let’s admit it, learning to trade Forex options does not come easy for most investors, but why not pack this style into your growing arsenal of profit-producing endeavors? During times of economic troubles, national or international, the Forex becomes even more volatile. If you accept that and understand how to trade Forex options, you can increase your trading account significantly.

    Forex options for beginners.

    Now, yes, we’ve gotten into the nitty-gritty of trading here, but you don’t have to be fearful and back away from Forex option trading. You need not fear, it’s another avenue that will build your wealth and make you happy. Forex options trading offers an abundance of opportunities if you do the homework.

    © 2011, www.daytraderoptions.com. All rights reserved.

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