Brief Of Currency Options Trading For Forex Beginners
One of the types of trading you are going to hear about when you first enter Forex is currency options trading. This type of trading is very popular with some traders and there are more than 3 billion options traded each year. However, it is also one of the types of trading that has the highest risk involved. Very few brokers will let traders sell these contracts without a lot of capital for their protection because the risk is so high. So, if you are going to get into options trading, it is important that you learn everything about it before you begin.
When talking about options trading you want to remember that we are talking about currency "pairs." So, let's first talk a look at the most used options trading called "standard" or "vanilla" options trading. You have a dollar amount on the face of one pair, a put/call, an expiration date for the option, a strike (this is what you're betting the dollar amount will be) and an exercise.
The put/call is the currency pair you will sell at the exchange rate in the future (expiration date). You "can" sell, but you aren't obligated to. The options are worthless if the put rate runs out of money. An expiration date on options trading is done in a week, a month, 3 months, 6 months, or 12 months.
When you see "European" exercise, the option can only be exercised, or sold on the date of expiration. If it is exercised, the option turns into a cash trade or SPOT and is completed at the strike price and settled on the SPOT value date.
If the exercise is "American" the option can be exercised at any time before the expiration date. It might be valued using a variety of numerical approximation techniques or it can be priced using binomial option-pricing models.
Exotic options trading has some non-standard features. The most popular of the exotic options is the "barrier option" and "knock-out option" These options include a barrier exchange rate (out-strike) that kills the option if breached at anytime during the life of the option (before the expiration date).
Other commonly used Exotic optionS are the Double Barrier option, Binary option, Double Barrier Range Binary option, Quantos Option (hedgers use this option a lot), the Average Rate option, and Compound options (these are options on options). There are many, many more types of Exotic Options that you will learn about as you delve deeper into options trading.
The advantages that you will hear about with this type of trading is that trades provide more leveraging power which makes them cost efficient, they are lower risk because they cost less (the relativity argument), and they can be used to hedge against reversals that may occur in exchange rates.
Having a clear understanding of how currency options trading works, and the actual level of risk involved will be important when you are making the decision of whether or not to do options trading. Taking classes, participating in forums that are run by successful options traders, and learning the intricacies of this type of trading will be very helpful in your entry into this arena. - 23210
When talking about options trading you want to remember that we are talking about currency "pairs." So, let's first talk a look at the most used options trading called "standard" or "vanilla" options trading. You have a dollar amount on the face of one pair, a put/call, an expiration date for the option, a strike (this is what you're betting the dollar amount will be) and an exercise.
The put/call is the currency pair you will sell at the exchange rate in the future (expiration date). You "can" sell, but you aren't obligated to. The options are worthless if the put rate runs out of money. An expiration date on options trading is done in a week, a month, 3 months, 6 months, or 12 months.
When you see "European" exercise, the option can only be exercised, or sold on the date of expiration. If it is exercised, the option turns into a cash trade or SPOT and is completed at the strike price and settled on the SPOT value date.
If the exercise is "American" the option can be exercised at any time before the expiration date. It might be valued using a variety of numerical approximation techniques or it can be priced using binomial option-pricing models.
Exotic options trading has some non-standard features. The most popular of the exotic options is the "barrier option" and "knock-out option" These options include a barrier exchange rate (out-strike) that kills the option if breached at anytime during the life of the option (before the expiration date).
Other commonly used Exotic optionS are the Double Barrier option, Binary option, Double Barrier Range Binary option, Quantos Option (hedgers use this option a lot), the Average Rate option, and Compound options (these are options on options). There are many, many more types of Exotic Options that you will learn about as you delve deeper into options trading.
The advantages that you will hear about with this type of trading is that trades provide more leveraging power which makes them cost efficient, they are lower risk because they cost less (the relativity argument), and they can be used to hedge against reversals that may occur in exchange rates.
Having a clear understanding of how currency options trading works, and the actual level of risk involved will be important when you are making the decision of whether or not to do options trading. Taking classes, participating in forums that are run by successful options traders, and learning the intricacies of this type of trading will be very helpful in your entry into this arena. - 23210
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If you need to make a little extra money trading currency, you will want to understand a bit about automatic forex trading and learn currency trading. Trade with confidence as soon as you learn priceless tips from the specialists!
posted by X - Men @ 5:07 AM
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