Recent Posts

You can capitalize in the currency market by venturing in forex options. In essence, this instrument provides boundless profit opportunities and the disadvantage is the premium paid to purchase the option, allows traders to amplify gains and minimize risk. This option, a good diversification tool, lets traders speculate on the market movement before a particular event takes place. Majority of investors dip their hands into such options for various reasons, normally to hedge against current positions or generate profit.

Single Payment Option Trading

Trade SPOT in three steps. Picture a scenario by choosing from several scenarios, obtain the premium, and receive the payout. When the trade becomes successful, the option is converted to cash. Trading this derivative is quite simple. One only needs to depict the scenario and play it out. If the trader’s speculation is precise, the payout is credited into his account. Otherwise, he loses the premium he paid. The premium, by the way, is normally greater than the usual option.

Traditional Option

The trader holds the right, not the obligation, to buy the option from the broker or seller at a preset price and date. This option is traded over-the-counter. Hence, holders have the power to set its validity and get the premium quote which they need to pay. Brokers have two option offerings: American style (exercised at any time until maturity) and European style (executed on its expiration).

Unlike single payment option trading, traditional options offer lower premium rates and render flexibility (applicable to American options). However, these are much harder to determine its rate and execute.

Forex option is a great tool to maximize profit or reduce losses. Trading this derivative is no easy feat, though. Before trading forex options, be mindful of these factors when assimilating its value: intrinsic value, interest rate, volatility, and value over time. And of course, forget not to get your dose of research.