ANSWERS: 1
  • Over the last 100 years the currency market has evolved to one where the different currencies fluctuate against one another. This has led to the development of Forex (foreign exchange) options as traders begin using the volatility that accompanies these markets to their advantage.

    Features

    Forex options pertain to when owners of currencies have the right to exchange their currency for others at some point in the future but are not required to. This allows traders to participate in up and down moves of the currency market without having to purchase the actual currency.

    Put-Call

    The put-call option allows traders to purchase a pair of currencies at a predetermined exchange rate at some future date.

    SPOT

    The Single Payment Option Trading (SPOT) option is when a trader is buying or selling based on a particular situation expected to occur in the future. For example if someone believes that the Australian dollar will decline to 0.9920 in the future, then he will be sold the option with the understanding that if such a scenario occurs he will automatically be credited with the profits.

    Types

    The two types of Forex options that are sold by brokers are the American style (this is when the option can be exercised at any time until expiration) and the European style (this option can only be exercised at expiration).

    Considerations

    Before trading any kind of Forex options, it is important to remember that it is always risky to engage in currency trading. Be sure to consult a financial professional to determine if Forex options are suitable for you.

    Source:

    Investopedia: Forex Option & Currency Trading Options

    X Rates: Australian Dolllar

    Investopedia: Getting Started in Forex Options

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