Forex Options

Written by BK Shaw
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You can use forex options to profit from price movements between currencies. Currencies are traded in pairs with the price of one currency being compared to the price of the other. An option will give you the right to buy or sell a currency pair at a certain price within a certain time frame. It is not necessary to have vast sums of cash to be able to take advantage of these markets.

The beauty of trading forex options is that the markets are highly leveraged. This means each option you buy has control over a certain number of euros or dollars. This means if you buy 5,000 dollars worth of options, you will not be trading 5,000 dollars against the euro currency. If you have purchased six options with your 5,000 dollars, you will be taking advantage of the number of euros an option is leveraging.

Even if you're dealing with forex options as supposed to gold options or soybean options, I still recommend buying the option. You can sell an option, write or grant an option, but the risk factor is different. I prefer to buy the option where I know that the maximum amount I can lose, if I'm wrong on the trade, is the cost of the option plus any transaction costs imposed by the brokerage and the National Futures Association.

Trading Forex Options

I recommend trading with a broker if you haven't traded before. If you do not have the time to give to a full time monitoring of the markets, I also recommend a broker. They get paid to watch the markets; you may have a full-time job to attend to.

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