A Short Of Currency Options Trading For Beginners
There are many different kinds of currency options trading. If you are just entering Forex trading, you will want to research and understand how options trading works and the risks involved whan you trade options. There are over three billion options traded per year and, while there are some benefits to this type of trading, most Forex brokers do not allow traders to sell options contracts without a high level of capital for protection because of the risk involved. In other words, there is a lot of risk involved in this type of trading and you want to be really sure about how to be successful at it before you start.
Forex trading involves trading currency pairs. It is fast, volatile, and is in constant motion. Options trading is adding an extra layer of activity to this already fast moving market. "Standard" or "vanilla" trading options are the most commonly used. It is fairly straight forward. You have the face amount, an option put/call, an expiration, a strike (this is what the trade will be by the expiration) and an exercise.
The option put/call is the right to buy or sell a currency pair at a given exchange rate at some time in the future (the expiration date). A trader has a right, not an obligation to sell. If the put rate runs out of money, the options expire and are worthless. The expiration dates are usually set at one week, one month, three months, six month, and twelve 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.
Options trading that have non-standard features are called "Exotic Options." These are very popular with the most popular being the "barrier" or "knock-out" option. These options have a barrier exchange rate (out-strike) and if the option is breached at any time during it's life (before the expiration date), it is killed.
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 of options trading that is most talked about is their increase in leveraging power which makes them cost efficient, the lower cost for this type of option which theoretically reduced the risk, and the ability to hedge against reversals in exchange rates.
When you are deciding on whether or not to participate in currency options trading it is important to have a clear understanding of the level of risk involved, the cost for trading in this forum, and have realistic expectations of what the gains will be. Taking classes and talking to successful traders will help you to decide if this is an arena you want to enter. - 23199
Forex trading involves trading currency pairs. It is fast, volatile, and is in constant motion. Options trading is adding an extra layer of activity to this already fast moving market. "Standard" or "vanilla" trading options are the most commonly used. It is fairly straight forward. You have the face amount, an option put/call, an expiration, a strike (this is what the trade will be by the expiration) and an exercise.
The option put/call is the right to buy or sell a currency pair at a given exchange rate at some time in the future (the expiration date). A trader has a right, not an obligation to sell. If the put rate runs out of money, the options expire and are worthless. The expiration dates are usually set at one week, one month, three months, six month, and twelve 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.
Options trading that have non-standard features are called "Exotic Options." These are very popular with the most popular being the "barrier" or "knock-out" option. These options have a barrier exchange rate (out-strike) and if the option is breached at any time during it's life (before the expiration date), it is killed.
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 of options trading that is most talked about is their increase in leveraging power which makes them cost efficient, the lower cost for this type of option which theoretically reduced the risk, and the ability to hedge against reversals in exchange rates.
When you are deciding on whether or not to participate in currency options trading it is important to have a clear understanding of the level of risk involved, the cost for trading in this forum, and have realistic expectations of what the gains will be. Taking classes and talking to successful traders will help you to decide if this is an arena you want to enter. - 23199
About the Author:
If you need to generate a bit more hard cash trading on the foreign exchange, you will want to understand a bit about learn currency trading and currency trading tutorial. Day trade with self-assurance as soon as you are taught unique ideas from the experts!
posted by X - Men @ 5:07 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home