Currency Options Trading To Make It Big!
The huge trading volume on the FOREX has increased the interest in the currency options trading market. Like equity options if a trader believes that the price of the currency is moving higher they will buy calls on the currency. This gives them the option to buy the currency at a set price with a specified time period. If currency prices look like they will decline the trader will purchase puts, giving him/her the option to sell the currency at a specific price for a certain period of time.
One difference between currency options and equity options is that currencies trade in pairs. The first currency listed in the pair is the base currency. The call or put is purchased on this currency. Traders may purchase a traditional option contract. They chose the strike price(exercise price) and the expiration date. This is another difference between currency options and equity options. After selecting these factors the broker calculates the premium they will charge for this right. If the trader accepts the premium, options are purchased. If for example the trader believes the euro will rise against the dollar, they will purchase calls on the EUR/USD. If they are right and before expiration the euro has moved up, the trader must exercise the option(purchase the currency) and then sell it in the market to realize the profit on the transaction. If the euro does not rise the option will expire worthless. The premium paid for the option is the amount lost on the transaction.
The SPOT contract is a bit different from the traditional option. It does not have to be exercised in order to realize the profit that has been generated. Just like the traditional contract the trader is the one who selects the strike price and the expiration date. The broker sets the premium based on these two factors. Premiums for SPOT contracts are higher than for traditional options. If you think a currency base price will move down you would purchase puts. If you are correct, the profit will automatically be credited to your account with the broker. If you are wrong, you will lose the premium at expiration.
Option premiums are set by the broker. The closer the current market price is to the strike price the higher the premium will be. The premium will be higher the more time there is until expiration. A high level of volatility in the currency price can also cause the premium to increase.
There are a number of reasons people get involved in the currency options trading market. Speculation is the top reason. Pure profit is the motivation. In this high volume market, with it's limitation of risk exposure traders find it easier to take advantage of price changes in the currency market.
Hedging is another reason for using currency options trading. The person buying options may own the currency because of business dealings they have with that country. They are interested in protecting themselves from price swings between the currency and their own country's currency. Options can help to do this.
Selling options is another slightly more complex strategy for trading options. The traders exposure to risk is much higher so this is not a strategy employed by most. Large deposits are required by the broker to secure these trades.
The currency options trading market is growing at a fast pace. Traders get involved because the lower capital requirements and the limited loss potential. If you develop sharp trading skills large profits can be made in this market. - 23199
One difference between currency options and equity options is that currencies trade in pairs. The first currency listed in the pair is the base currency. The call or put is purchased on this currency. Traders may purchase a traditional option contract. They chose the strike price(exercise price) and the expiration date. This is another difference between currency options and equity options. After selecting these factors the broker calculates the premium they will charge for this right. If the trader accepts the premium, options are purchased. If for example the trader believes the euro will rise against the dollar, they will purchase calls on the EUR/USD. If they are right and before expiration the euro has moved up, the trader must exercise the option(purchase the currency) and then sell it in the market to realize the profit on the transaction. If the euro does not rise the option will expire worthless. The premium paid for the option is the amount lost on the transaction.
The SPOT contract is a bit different from the traditional option. It does not have to be exercised in order to realize the profit that has been generated. Just like the traditional contract the trader is the one who selects the strike price and the expiration date. The broker sets the premium based on these two factors. Premiums for SPOT contracts are higher than for traditional options. If you think a currency base price will move down you would purchase puts. If you are correct, the profit will automatically be credited to your account with the broker. If you are wrong, you will lose the premium at expiration.
Option premiums are set by the broker. The closer the current market price is to the strike price the higher the premium will be. The premium will be higher the more time there is until expiration. A high level of volatility in the currency price can also cause the premium to increase.
There are a number of reasons people get involved in the currency options trading market. Speculation is the top reason. Pure profit is the motivation. In this high volume market, with it's limitation of risk exposure traders find it easier to take advantage of price changes in the currency market.
Hedging is another reason for using currency options trading. The person buying options may own the currency because of business dealings they have with that country. They are interested in protecting themselves from price swings between the currency and their own country's currency. Options can help to do this.
Selling options is another slightly more complex strategy for trading options. The traders exposure to risk is much higher so this is not a strategy employed by most. Large deposits are required by the broker to secure these trades.
The currency options trading market is growing at a fast pace. Traders get involved because the lower capital requirements and the limited loss potential. If you develop sharp trading skills large profits can be made in this market. - 23199
About the Author:
To REALLY make a big splash in currency options trading you MUST get a good currency trading education!
posted by X - Men @ 5:00 AM
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