Category:Forex Options

Forex Options / Currency Options

To explain Forex Options, it’s important to explain what an option is. An option is a contract which gives the buyer (known as the owner) the right, but not the obligation, to buy or sell an underlying asset at a fixed price within a specified time frame.

An underlying asset could be currencies, stocks, commodities and indices. It is the item which is being traded. This fixed price is the price at which an asset is bought or sold at – in currency option trading it is known as the strike price.

There are two types of option strategies: Call and Put.

In a call option, the owner may buy a quantity of an underlying asset at the strike price within a specified time frame.

The buyer of a call option believes the market price of the asset will rise above the strike price. If this happens, then the option (or contract) allows the owner to buy the asset at the strike price which is lower than its current price. This means the asset can be bought below its market value and the owner can profit from the difference.

In a put option, the owner may sell a quantity of an underlying asset at the strike price within a specified time frame.

The buyer of a put option believes the market price of the asset will fall below the strike price. If this happens, then the option allows the owner to sell the asset at the strike price which is higher than its current price. This means the asset can be bought below its market value and the owner can profit from the difference.

There are several benefits of forex option trading which is why many investors favor it over other options:the risk is limited to the amount purchased in the option an investor can pay less money to enter into a deal and the possibility of profiting is high the risk is known from the offset, since the maximum an investor can lose is the money he deposited for the trade.

However, once an option has been bought, it cannot be sold so the decision to trade is final. Also, it is difficult to predict the market so an investor must be careful and considerate when trading options.

Initially, currency trading was only accessible to wealthier customers who could afford to trade with large quantities of currencies. However, due to the introduction of online trading platforms, such as anyoption™, profiting from currency option trading, even for small investors, is possible and achievable. Online option trading also enables people to invest whilst in the comfort of their own home. They can trade from wherever they are geographically, without the need for a broker.