Options have always been connected with stock market trading and not the Foreign Exchange market. It is better known as a stock market tool. However, the notion that this is only for the stock market is wrong, people can also opt to trade forex options. There are two methods in order to use forex options; the traditional option and the Single Payment Option Trade or SPOT. Both of which gives the trader a decisive advantage by putting him or her in a strategic position. The best part is, the trader would risk less money. How is this possible?
In traditional options trading, the buyer purchases not the currency itself, but simply the option or the right to purchase the currency at some time in the future as long as it is within the expiry date. The price of which would be fixed and both the date and price cannot be changed as long as the contract does not expire yet. This means that the trader would have the advantage of purchasing the currencies at a lower price if or when the value of it goes up in the future.
When it comes to SPOT, the trader would provide a scenario which he thinks could happen in the near future. The trader would then receive a premium quote based on the scenario. If this takes place in the future, the SPOT would automatically convert the option into cash. The downside of this is that the premium costs more than an average forex option, thus the risk is a bit higher.
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From Timothy Stevens - The Forex Options Guy who provide valuable Forex Options Training at http://www.NonDirectionTrading.com
