Option On Forex

A forex option provides you with the right but not the obligation to purchase or sell a currency pair at a certain price on a certain date. The certain price in this case is called the ‘strike price’. That is the option provides you with the flexibility of choosing where you want to purchase or sell the currency pair. The certain date in this case is called the ‘expiry’ or the expiration date of the option.

If you feel that the market is going to go up then you would buy a call option. Likewise, if you feel that the market is heading down, you would buy a put option. The seller (or ‘writer’) of the forex call option is required to sell the currency pair should the buyer so decide. The buyer of the call option pays a fee (called a premium) for this right.

And, on another note…

The buyer of a forex call option wants the cost of the chosen currency pair to increase in the future; the seller either expects that it wo n’t, or is willing to give up some of the top (profit) from a price rise in exchange for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price.

A forex put option provides you with the right but not the obligation buy or sell a currency pair at a certain price on a certain date. The certain price in this case is called the ‘strike price’. That is the option provides you with the flexibility of choosing where you want to purchase or sell the currency pair. The certain date in this case is called the ‘expiry’ or the expiration date of the option.

If you think that the market is going to go down greatly then you would buy a put option. Likewise, if you feel that the market is trending up, you would then buy a call option. The buyer of the put option pays a fee (called a premium) for this right as the buyer expects the cost of the chosen currency pair to fall in the future while the seller expects that it will not.

Put options can only make profits for the buyer if the cost of the chosen currency pair has moved down past the strike price greatly. When the price of the chosen currency pair falls past the strike price at the time of expiration, the put option is said to be ‘in the money’. When the price of the chosen currency stays at or around the strike price at the time of expiration, the put option is said to be ‘at the money’. When the price of the chosen currency pair goes above the strike price at the time of expiration, the put option is said to be ‘out of the money’.

The best way to trade Forex online without risk is by ‘hedging’ a trade with a put option. A put option is a type of insurance where it protects you in the case where the price falls unexpectedly. This is why it is important to get a Forex broker that allows options on Forex trades. The process is simple and requires basic three steps. Firstly, find a currency pair that has been either oversold or overbought. Next, go into the trade and then purchase a put option. The put option should be the same number value as the actual Forex trade and the strike price should be exactly equal to the open price. This essentially eliminates any potential risk to your trade as it covers you whether the price goes up or down. The only risk is the price of the insurance. I recommend buying a put option that lasts at least 6 months. Keep in mind, this is method only works for you are doing mid-to-long term trading and not day trading.

Forex Options Trading can do a good model for those who want to do Forex Trading. What you need is a right system, the will to work and determination to not give until you reach your goal. If you’re ready to take action, then this Forex Trading is suitable for you.