Forex options are securities that allow option investors to realize profits without the need to buy the underlying currency pair. With the use of leverage, forex options may spell huge profits for the trader. It however comes alongside some risks. On the other hand, the currency options may be held with the underlying currency pair which will result to earnings but minimize the risk. Sometimes, the potential for earning may have to be limited to be able to also limit the downside in the transaction. In forex option trading, the risk of the option writer is greater. Due to this, most option brokers require higher capital on the part of the traders if they intend to sell the options contract. Likewise, not all forex traders offer option contracts to traders for the same reason. It would be best to try to find a good broker that would allow traders to do options trading along with other traditional positions.

Forex option trading has two types, traditional and STOP options. The first one is what is commonly called the “put/call option”. In forex trading, “put” is synonymous to “sell” and “call” is synonymous to “buy”. The traditional option allows for the trader to either buy/call or sell/put options which would give him the right to exercise said option at a certain date and price previously agreed upon by the option buyer and the option seller. The trader is in no obligation to exercise the said option when the time comes if he refused to do so but will have to pay for the right to the option. The said payment is called premium. If the movement of the currency pair goes to the advantage of the trader, he may exercise his right and buy/sell the pair. He may then sell or buy the pair at a price that will earn him profit. If he decides not to use his option, it expires worthless. The only loss on the part of the trader is the minimal amount of the premium.

SPOT (Single Payment Options Trading) requires a higher premium on the trader though it is simpler to set and carry out. What happens in a SPOT is that a trader predicts a currency pair scenario and quotes a premium. The scenario would include an agreed upon price and expiry date. If the trader buys the SPOT option and his forecasted scenario happens, his option becomes spot cash.

Timothy Stevens is a Forex Options Trader who owns http://www.NonDirectionTrading.com – He has helped hundreds of people on Trading Forex with Options.

He has recently developed a free e-course showing you a step by step process for starting your Forex Trading easier. To learn how to start Forex Trading with Options without wasting your time and losing more money, visit http://www.NonDirectionTrading.com/members/FreeReport.htm

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