If you are getting involved in Forex option trading, there are really just 2 types of options available to retail traders. As far as the broker is concerned, Forex option trading is all about the call or put option, this works in the same way to the stock option. Another option however is only the single payment option which is referred to as spot trading, this gives traders a bit more flexibility.
When a broker gets involved in Forex option trading, they basically have the right to buy something from the person selling the option at a specified time and cost. There is no obligation though for the broker to purchase, they just have the right to do so if they wish.
When the broker is involved in Forex option trading, it happens over the counter. Both parties can then take a decision on the date the election will be valid, they’ll then get a quote which tells them a premium must be paid for the option. In this options market, it’s essential for a trader in order to have a put along with buying a call.
One bonus to traditional options is that they tend to have lower premiums than single payment option trading. There is greater flexibility to be had in American traditional options since they are both bought and sold prior to the expiration date. The only thing is they’re harder to establish and execute than if you were to take part in single payment option trading.
Trading options in the United States is different from buying and selling them in Europe. American options can be dealt anytime, while European options aren’t settled until after the expiry date. This is important for investors who wish to trade in both arenas.
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