Trading Forex with Options

trading forex with optionsTrading in the Forex market can be a good way to diversify your investment portfolio and benefit from fluctuations in exchange ratios. While many traders are familiar with the traditional method of trading in the Forex market, trading Forex options is not as widely understood. Forex options allow you to speculate on the movements in the Forex market without actually buying or selling any currencies.

Regular Options

Traditional options allow investors to speculate on what will happen with a currency pair. With a regular option, you have the right to buy or sell a currency pair at a specific price by some future point in time. For example, you may buy an option contract that allows you to buy one lot of the EUR/GBP pair at 1.450 by the 15th of the month. If you decide to exercise the option contract, you have to pay the 1.450 price for the lot. If you decide to do nothing, the option contract will expire on the 15th. When that happens, you will lose the money that you paid for the option contract and nothing more, regardless of what happens in the market.

SPOT Trading

SPOT or single payment options trading is another way that you can get involved with options trading in the Forex market. With SPOT trading, you specify a scenario that you think will happen in the Forex market by some point in the future. For example, you may specify that the EUR/CHF pair will fall below the 1.325 threshold within the next 14 days. If it happens, you collect a pay out on the option contract. If it doesn’t happen, you’re only out the amount that you paid for the options contract.

Advantages

Trading options in the Forex market can provide you with a number of advantages that other forms of investment may not be able to provide. For example, you have unlimited profit potential with this type of investment. You also have a limited downside and the only thing you’re risking is the amount that you paid for the option contract.

Using options can also be a good way to hedge your bets when placing regular trade in the Forex market. When you are dealing with cash Forex trades, you can pay a little bit extra to take out an options contract in the opposite direction. This way, if the market reverses, you can exercise the option and minimize your loss. If it doesn’t reverse, you can take profit and you’re only out the option premium.

Considerations

Some people use options as a way to speculate on big upcoming market announcements. This can be a much lower-risk way to trade the economic news than getting involved with cash Forex. If you plan on using this strategy to trade the market, you should start small and work your way up to bigger contracts. This way, you can get a feel for how the options trading process works and whether it is in your best interest as an investor.

Contact a LucrorFX specialist today to get started in your investment.

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