Currency options trading create options with the foreign exchange providing the underlying assets. The option contract can be traded on a forward basis. This means the settlement date of the options contract is in the future which is usually 30, 60, 90, 6-months or any period up to a year. The currency options are the right but not the obligation to buy or sell currency at a specific strike price before or on an expiration date.
Vanilla Options
Currency options trading leading to a standard option is called a vanilla currency option. If it were a call option, the option would be exercised if the spot exchange rate on the call currency in the Forex market is higher than the strike price stated in the contract. If it is a put option, the contract would be exercised if the Forex market exchange rate for the underlying put asset or put currency remains below the strike price.
Going Exotic
Exotic options are a different type of option in currency options trading. The exotic options are more complex and have varying conditions. For example, the knock-out option has a barrier exchange rate that is called an out-strike. When the out-strike is exceeded, the option automatically expires.
Other exotic options used in currency options trading include the double-barrier option, the binary option, the one-touch-SPOT, the basket option, compound options and many others.
Many traders enjoy the challenge of currency options trading and one reason is because of the flexibility available in trading strategies.
Filed under General by on Sep 1st, 2011. Comment. 
FOREX option trading is another opportunity for traders to participate in the currency market. FOREX is the short name for the foreign exchange market where currencies are traded 24 hours a day. You can trade in the actual currencies or you can join in Forex option trading in which currencies are the underlying assets.
Like all other options trading, there are two types of options called call and puts. But in Forex option trading there are also two types of trading: call-put and SPOT trading. SPOT stands for single payment option trading alternative. If the option is exercised in a SPOT transaction, it is automatically converted to cash. One of the advantages of SPOT Forex option trading is that you have incredible flexibility because you can name your price and the expiration date to get a premium quote. Once you know the premium amount you can then choose whether you want to follow through with the transaction.
In Forex option trading you buy options that have paired currencies as the underlying asset. Using the traditional call-put Forex trading, for example, you may buy two lots of AUD/USD which is a pairing of the Australian and U.S. dollars at a specified price. You are actually buying an AUD call and a USD put. If the exchange rate or price is less than the specified price at the time the expiration date arrives then the option is worthless. In that case you would lose the premium paid.
When Forex option trading, if the exchange rate rises above the price stated in the option then you would exercise the option. At the time the option is exercised, you will then own the lots of currencies and can sell them for a profit.
Forex option trading is attractive to traders because risk is limited while the profit potential is unlimited.
Filed under General by on Aug 25th, 2011. Comment.
Forex options trading takes place in the Forex market which is where all currencies are exchanged. A Forex option has currencies as the underlying asset which always come in pairs. The primary goal of buying Forex options is to secure an exchange rate at a point in the future or to take advantage of a moving market. Some traders adapt Forex options trading to stable markets too by varying the currency pairs chosen as the underlying asset.
Forex Puts and Calls
The Forex option is a contract that gives a buyer the right, but not the obligation, to buy or sell currency pairs at a set price and by or on the contract expiration date. The option buyer must pay a premium to the option seller.
- Buyer can exercise the contract before the expiration date
- Buyer can let the option expire
- Position in market is liquidated at the time the contract is exercised or expired
- Profit is generated from different between the strike price and the market price
- Only premium is at risk
Forex options trading includes both call options and put options. The trades can be structured as simple standard puts and calls or as more complex options trades that include varying price and time conditions.
Choose Your Style
In Forex options trading you have a choice of American-style options or European-style. The American-style options can be exercised at any time between contract creation and the contract expiration date. The European-style options can only be exercised on the contract expiration date.
Forex options trading presents a great way to expand your options portfolio.
Filed under General by on Aug 17th, 2011. Comment.