Forex Option Trading to Diversify Your Forex Trading

Forex option trading is a hedging instrument, used not only by big financial institutions, but also by many individual Forex traders. Forex option trading is a great tool for implementing both, hedging and speculating strategies. Forex options are among the most liquid options in the world. The buyer in this case becomes a holder of a foreign currency option. The seller becomes the writer, or the granter.

The forex option holder receives the right to exchange a predefined amount of currency at a predefined date and price. The option buyer is obligated to pay a premium to the seller of the option. In fact, this is the only liability of the buyer, making Forex option trading a field with very limited liabilities. The forex option seller has two ways to precede with his/her option – to buy the contract back or to hold it until its expiration.

Forex option trading requires buying at a fixed price, in a fixed amount as well as at a fixed expiration date. All of this unties you from the dangerous market fluctuations.

Do Forex options always get exercised? As a matter of fact, most of the time the options are not exercised by their purchaser with the Forex option trading; options are often offset until they expire. If the option gets exercised, a spot position is assigned to the option holder. There also is a threat of an option expiring worthless, if at the expiration time the strike price is lower than the purchase price.

As mentioned above, you only pay a fixed price for the transaction when you buy a Forex option. Forex option trading will safeguard you against losing more than you have invested into the option. In the event of the final strike price on the market being higher than the purchase amount, you will instantly profit. In the event of the final strike price on the market is lower than the purchase price, you will lose. However, you will never lose more money due to this fixed price, in case your transaction becomes worthless.

Forex option trading is applied strictly at the international exchanges, since it is a hedging instrument. While being probably riskier than regular Forex trading due to its uniqueness, Forex option trading is also potentially much more profitable.

There are two types of options in Forex option trading- call options and put options. Call options give the right to buy currency, and put options give the right to sell currency. Both these options generally change in respond to the change in volatility, i.e. if the volatility falls, the prices of both options also fall. There are common and customized Forex options, respectively called “plain vanilla” and exotic.

In order to shield yourself from potential losses, it is better to follow general safety with Forex option trading:

1. Do not place a large chunk of your total capital into Forex option trading.

2. Do not try to trade at all times. It is better to patiently wait for the proven signals.

3. Trade on a Forex option trading demo account prior starting to trade live.

Forex option trading is a good way to learn and understand more about the Forex market. Forex option trading is a risky but also potentially very profitable Forex trading instrument.

Source: Steve Maenshel

BHP Long-Dated Calendar Spread

 Post is currently under repair.

If you would like the to find our more info about options tranding in general please contact Eden Hage on 1300 368 316 or  email info@totaltrader.com.au

Diversify your investment with FX Options

Forex Options trading is a more advanced type of currency trading available with a Tricom Trader online trading account. FX Options can be used to facilitate a number of trading strategies on a medium to long-term investment timeline.  They also offer an excellent opportunity for hedging spot positions. Forex Options are available for currency crosses, and Gold and Silver against the US dollar.

Tricom Trader offers Over the Counter (OTC) plain vanilla European style Forex Options in well over 30 major currency crosses, all through our online trading platforms.

Benefits of trading FX Options with Tricom Trader:

• Forex Options for 34 currency pairs
• Low margin requirements with professional netting calculations for hedging spot positions
• Option trading on live streaming price quotes, all with no dealer intervention
• Option expiries from short dated to one year
• Gold and Silver Options
• Automatic exercise of Options on expiry.

The majority of vanilla Options can be executed directly on live price quotes without dealer intervention. For other Options – including exotic currencies and multiple leg Options, the platform offers good price indications with trades quoted by a dealer on request.

What are FX Options?

A Forex Option gives an investor the right, but not the obligation, to either buy (Call Option) or sell (Put Option) a certain currency pair at a specified price (known as the strike) on a specified date (the expiry date). For this right to buy or sell the underlying asset, a premium is paid upfront to the seller of the Option. Whether one chooses to exercise this right is dependent upon the market conditions at the time of Option expiry. Trading Forex Options makes it possible to profit when a currency pair moves higher or lower.

A Tricom online trading account is a valuable tool for the professional FX trader. Our suite of trading platforms support online trading of FX Spot, Options and Forward Outrights. For the FX Options trader, Tricom is one of the only online providers that facilitates Options trading on live prices.