Sunday, 27 September 2009

Forex Options

Forex Options

Most people relate ‘Options’ with Stock Markets. However, the Foreign Exchange Market, also known as Forex Market, also provides the opportunity to trade Options. The Forex Options give the traders and investors a large number of opportunities to increase their profit while limiting the risk.

Types of Options
Forex Options are basically of two types: Traditional Options & Single Payment Options Trading
Traditional Options

The traditional options provide the buyers with the right to purchase anything at a pre-decided time and price from an option seller. For instance, one can purchase an option for buying two groups of EUR / USD at 1.2000 in a month. In this case, if the price of this currency pair remains below the pre-decided rate, the option expires without any trade. However, if the price increases even beyond the set rate, suppose to 1.4000, the buyer can still make use of their option and obtain the currency at the pre-decided rate, which was 1.2000. Thus, it allows the buyer to earn profit by selling the currency at higher rates.

SPOT or Single Payment Options Trading

In a SPOT option, the trader determines a scenario such as the rate of EUR / USD will go beyond 1.2000 in 10 days, obtains a quote for it and gets paid for it when this scenario takes place. SPOT converts options in cash automatically when the option trade is successful, thus resulting in a payout.

Most traders like the choices that one gets due to SPOT. SPOT option is comparatively easier to trade and is all about entering the right scenario. If your estimation is right, you will gain cash. On the other hand, if you aren’t able to form the right estimate, you lose an amount from the premium. SPOT Options also have an added advantage that they offer you one with the choice of varied scenarios, thus giving traders the chance to choose exactly what they want or predict.

On the flip side, SPOT offers demand high premium and cost more than the standard options.

Why Should One Trade Options?

There are a number of reasons behind why one should go for Trade Options. These include:

    * The risk of losing money is limited only to the premium of the option.
    * The profit potential is vast and unlimited.
    * One has to pay lesser money up front.
    * One is free to choose the date of expiry as well as the price.
    * Options can be used to trade on market movement predictions with risking a large sum of money.

The Single Payment Options Trading provides a large number of choices to the traders. These include:

    * Standard option

    * No-Touch SPOT which means that one will receive the payout when the price does not reach a pre-defined level.

    * One-Touch SPOT which means that one will gain profit when the price reaches a particular level.

    * Double no-touch which implies that one will be eligible for a payout when the price does not touch either of the two predefined levels.

    * Double one-touch implies that one receives a payout when the price touches any one of the two defined levels.

    * Digit Spot means that one will receive payout when the price is either above or below a particular level

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