Looking At Traditional Options
If trading options interests you, don’t be dissuaded by their complexity. They offer enormous advantages and anyone can learn to trade them.
In a quick overview of options you’ll learn that there are two kinds of options available to Forex participants. The most popular is the call or put option which works very much like the ones you’d obtain when on line stock trading. The other choice is the single payment or Spot option.
If you consider traditional options you’ll find that these allow you to buy the right to obtain a currency from the option seller at a set value and at a predetermined time. For instance, you may choose to buy an option to purchase ten lots of the EUR/USD at $1.3200 in two weeks. This type of agreement is generally called a “put.” Like in traditional currency trading, when you purchase a currency, you’re selling another one simultaneously. In this illustration, by obtaining a put you’re also purchasing the “call.” If the EUR/USD trades below $1.3200 the contract expires “worthless.” As the investor, you lose the “premium.” But if the EUR/USD rallies to $1.3500 you’ll be able to exercise your option and gain 10 lots for only $1.3200 which can be sold at a profit. Among traditional options you have the American and European style contracts. The first one allows you to exercise your right up to the expiration date; the latter one allows you to exercise your right only when the contract expires.