Volatility is very important for traders because on the trading market everything happens very fast and it is very important to transfer the money before they expire.
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Unfortunately many traders aren’t able to view the market direction in time and their timing isn’t synchronized with the trading signal. In most cases they spot the guidance of the prices, stop but when the trend goes up as they suspected there’s nothing to do, and they lose big money.
Which leads us to….
For example, a trader sees the pound trading at 1.70 and buys a 1.90 call. The price goes the way they thought and reaches 1.87-they then run out of time and the option expires worthless. This happens all the time-prices go in the right direction. However, the dealer makes no money.
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To make money in options you need to purchase in the money options, with plenty of time value-this will increase your odds of success dramatically.
The currency options can change all that because they’re ok with your short term swings and they will also keep you in the trend. It’s attractive but you needs to know that up to 90 per cent of the options expire and you cannot do anything about that.
There’s a good way, and there is a bad way to play this trade options game so let us start from the beginning.
Before time expires, many traders choose to buy cheap at the money options away from their strike price and the one result is because they lose their money. That’s why it is so cheap. You have to be very careful about time decay because the options expire very fast.
These traders repeat their mistake again and again dreaming about huge profit but in the vast majority of cases they only lose money.
Obviously, the right way to buy currency options is exactly at the opposite side of the equator in relation to the above mentioned one. It’s recommended that you buy in the money either at the money options to ensure that the time will not be your enemy. There are better chances of success provided that the options have less profit potential than out the money option.
If you know how to use currency options then this very important risk control tool will offer limited risks and will increase the probability of making profit.