Easy Forex Trading

Forex option trading is a financial instrument, which serves for both, hedging and speculating. In the past, only the large financial institutions used to use Forex option trading for hedging. However, nowadays this type of trading is also available for individual Forex traders. Just like any other type of trading, option trading has advantages and disadvantages. For example, this financial tool is very liquid and at the same time naturally very risky. Forex option buyers are called holders, and option sellers are called granters.

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 can protect you from unfavorable fluctuations, which could eat up your whole account, since the amount that you may lose is fixed in advance.

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 before, options in Forex option trading have a fixed price. This special feature shields you from losing all of your capital with a particularly unfavorable market move. You will profit when the strike price is higher than your initial purchase price, and you will incur a loss when its lower.

Forex option trading can only be applied on the international markets, since it’s a hedging instrument. Forex option trading is generally considered very risky, but also with higher potential of profits.

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.

How to make your Forex option trading safer?

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

2. Trade only based on proven signals.

3. Practice on a demo account before starting to trade with real money.

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.