Forex

Forex options, are another component that draws similarities with the stock market, they offer traders more security in being able to limit riskand increase profit when trading in the market. There are generally two types of options an investor can choose from, the first being a traditional option. This gives the buyer the right but not the obligation to purchase a currency at a set or agreed price and time. If a trader has taken advantage of Forex options and during the agreed time the currency being bought appreciates, the trader can sell this currency at a profit.
However, if the currency depreciates the trader loses only the premium paid for the option. The second type of Forex options available is known as SPOT- Single Payment Options Trading. The Forex trader dictates this type of option, it is a prediction from the trader on what they forecast will occur on the Forex market. If the trader is successful the profit potential can be unlimited and if the SPOT is not a success only the premium is lost. Forex options give investors another tool with which to limit losses and increase profits, they are particularly popular at periods of economic reporting.
Transactions in options on FOREX carry a high degree of risk. Purchasers and sellers of options should familiarize themselves with the type of option (i.e. put or call) which they contemplate trading and the associated risks. You should calculate the extent to which the value of the options must increase for your position to become profitable, taking into account the premium and all transaction costs.
The purchaser of options may offset or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the option is on a leveraged position, the purchaser will acquire a FOREX open position with associated liabilities for margin. If the purchased options expire worthless, you will suffer a total loss of your investment which will consist of the option premium (transaction costs on FOREX are usually zero - no commission). If you are contemplating purchasing deep-out-of-the-money options, you should be aware that the chance of such options becoming profitable ordinarily is remote.
Selling ("writing" or "granting") an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of that amount. The seller will be liable for additional margin to maintain the position if the market moves unfavourably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obligated to either settle the option in cash or to acquire or deliver the underlying interest.
If the option is on a leveraged position, the seller will acquire an open FOREX position with associated liabilities for margin. If the option is "covered" by the seller holding a corresponding position in the underlying interest or a future or another option, the risk may be reduced. If the option is not covered, the risk of loss can be unlimited.
Certain brokers in some jurisdictions permit deferred payment of the option premium, exposing the purchaser to liability for margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time.
Many people think of the stock market when they think of options; however, the foreign exchange (FOREX) market also offers the opportunity to trade these unique derivatives. Options give retail traders many opportunities to limit risk and increase profit. Here we discuss what options are, how they are used, and which strategies you can use to profit.