What Is Currency Options Trading?
Currency options are derivative securities traded on the foreign exchange (Forex) market. Traders use currency options to limit downside risk (potential losses). Like all options, currency options give the trader the right to buy or sell the underlying security, although they do not actually have to do so. Currency options come in two main forms: traditional Forex options and SPOT (single payment option trading) options. Forex Options Forex options are traded on-line by investors using specialized trading software in the hope the currency exchange rate will move a certain way before the option’s expiration date. Traditional A traditional Forex option confers the right to buy one currency in a pair at a set “strike price” and simultaneously sell the other currency at the same price. Market Direction The trader chooses which currency is the buy option based on which way she expects the currency rate to move. Choices One unique feature of currency options is that the trader gets to choose
