How To Make Money From Currency Option Trading?
Being an active trader in the currency markets can be a high risk venture. To participate in the market many people opt for currency option trading instead. Moves up and down in a currency price can be played using puts and calls. If a trader buys a put he/she believes the price of the currency will soon decline. If they are right, they can buy the currency at a low price and put(sell) it at the stated strike price. If they think prices will move higher they buy a call. If they are correct, they can call(buy) the currency at the strike price and immediately sell it at a higher price in the market. Options have a set life span. After this time passes they expire.
One type of contract used in currency option trading is the traditional Forex option. With this type of option the trader has set his/her own strike price and expiration date. The broker will charge a premium based on these to factors for the contract. If you agree to the premium level you decide have many contracts you want and buy them from the broker. An example would be buying a call on the GBP/USD. You would be buying a call on the pound believing the price will move higher against the dollar before the option expires. To make a profit if this happens you have to exercise the option, buying the pound and immediately selling it at the higher market price. If your prediction is incorrect and the option expires, the premium is the only lose you will realize. Using options will limit your exposure to risk.
The SPOT contract is another type used in currency option trading. It is a "single payment option trade." This means that if for example you feel that the euro will advance against the dollar and you buy calls on it, if you are right you do not need to actually purchase the currenct=y and sell in the market to make a profit. The profit from the option is automatically deposited in your trading account. Brokers charge a higher premium for trading this type of contract, however for speculators is the easiest way to trade.
If the current price of the currency in the market is close to the strike price of the option the premium will be higher. The more time until expiration date the higher the premium will be. Volatility in the underlying currency price is also a factor in determining premiums. The higher the volatility the higher the premium.
One reason people get involved in currency option trading is simply to speculate on the price movements of the currency. These people are solely profit driven. This is the largest part of the market.
Another use of currency option trading is for the purpose of hedging a portfolio. If a person is long the actual currency they may purchase puts in order to minimize the risk of price fluctuations while the hold the currency. People who do business international may use this strategy as a protective measure.
A riskier strategy of trading currency options is selling options short with the intention of covering them when the price moves in the correct direction. Since loses are not limited in this style of trading. brokers typically require large cash deposits to secure these trades.
As we have discussed, currency option trading can be a very profitable venture if you trade correctly. Premiums on options are typically smaller than deposits for the actual currency so profits can be large. One of the primary benefits is that with options you can limit your loses. - 23211
One type of contract used in currency option trading is the traditional Forex option. With this type of option the trader has set his/her own strike price and expiration date. The broker will charge a premium based on these to factors for the contract. If you agree to the premium level you decide have many contracts you want and buy them from the broker. An example would be buying a call on the GBP/USD. You would be buying a call on the pound believing the price will move higher against the dollar before the option expires. To make a profit if this happens you have to exercise the option, buying the pound and immediately selling it at the higher market price. If your prediction is incorrect and the option expires, the premium is the only lose you will realize. Using options will limit your exposure to risk.
The SPOT contract is another type used in currency option trading. It is a "single payment option trade." This means that if for example you feel that the euro will advance against the dollar and you buy calls on it, if you are right you do not need to actually purchase the currenct=y and sell in the market to make a profit. The profit from the option is automatically deposited in your trading account. Brokers charge a higher premium for trading this type of contract, however for speculators is the easiest way to trade.
If the current price of the currency in the market is close to the strike price of the option the premium will be higher. The more time until expiration date the higher the premium will be. Volatility in the underlying currency price is also a factor in determining premiums. The higher the volatility the higher the premium.
One reason people get involved in currency option trading is simply to speculate on the price movements of the currency. These people are solely profit driven. This is the largest part of the market.
Another use of currency option trading is for the purpose of hedging a portfolio. If a person is long the actual currency they may purchase puts in order to minimize the risk of price fluctuations while the hold the currency. People who do business international may use this strategy as a protective measure.
A riskier strategy of trading currency options is selling options short with the intention of covering them when the price moves in the correct direction. Since loses are not limited in this style of trading. brokers typically require large cash deposits to secure these trades.
As we have discussed, currency option trading can be a very profitable venture if you trade correctly. Premiums on options are typically smaller than deposits for the actual currency so profits can be large. One of the primary benefits is that with options you can limit your loses. - 23211
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Before you proceed with any currency option trading be SURE to read up on best broker forex traders!
posted by X - Men @ 4:36 AM
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