FX options trading basics

 
on July 21 2013 5:27 PM
A man is reflected an electronic board showing currency exchange rates at a money exchange in Buenos Aires
A man is reflected on an electronic board showing currency exchange rates at a money exchange in Buenos Aires November 23, 2011. REUTERS

Options trading has been an often discussed and dissected topic. On the other hand, currency options is a category all by itself. While there are many websites that talk about option trading but only a brave few are able to discuss options on foreign exchange instruments. One of the unique, simple and effective approaches to target high probability through low risk trading.

While most options expire worthless, this would lead to a conclusion that many option traders take a hit and absorb a loss. Many venture into option trading with a gambling mentality, seeing the market as a game of chance. In reality, trading options should be a controlled risk with a short term investment strategy. 

In a nutshell. options are contracts that cover an underlying asset. These financial instruments are traded with a directional bias based on the covered underlying asset. This is done by either using a call option, when prices are expected to rise or when prices are predicted to fall, a put option is then put in as a trade. Learn more about how options work in the spot FX market.

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