Limiting risk and boosting your profit are two obvious reasons to explore your Forex trading options. Two primary types of options for retail traders include the classic call/put option and the "SPOT" or single payment option trading which is more versatile than the traditional trading options.
Basic traditional options afford buyers the opportunity with no obligation to purchase from the option seller at a set price/time. This allows the buyer to exercise the option at will, often so it can be quickly sold for a profit. Traders have the option to select the date and price that this traditional style option will remain valid. A quote will list the premium that must be paid to get the option.
American style traditional options can be executed at any time until the expiration date. European traditional trading options are only exercised at the expiration point. American options provide the flexibility to be bought and sold prior to the expiration. Generally, traditional options have cheaper premiums than SPOT options, yet they can be more complicated to exercise and determine than SPOT options.
SPOT options mean the trader selects the situation - such as AUD/USD will peak 1.4000 in x number of days. A premium option cost quote is obtained and if the predicted scenario actually happens, a payout is received. The ease of SPOT trading is that it automatically changes your option to cash when your predicted event takes place.
The cons of SPOT trading include variations in the premiums and the date of the option which means the risk and reward will fluctuate. Once you purchase a SPOT option you are locked into this and it cannot be traded. Finally, predictions are difficult and trading can become risky.
Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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