What is forex options: what does a trader need to know?

Saqib Iqbal Updated:

 The development of the global financial market over the past 10-20 years is carried out at such a high rate that even experienced specialists in this industry do not have time to track all the changes on it. The emergence of new financial instruments, promising areas for investment, hedging mechanisms in the real economy or speculative operations, the creation of new cryptocurrencies, etc. This list can be continued indefinitely, but this occupation cannot be called the rational use of its time. Therefore, everyone who has decided to make money in the financial markets should choose one direction and constantly improve their knowledge in areas that are directly related to it. How does this happen in practice? Consider this issue, using as a promising business areas, forex options.


What is forex options ?


Overview of forex options

Probably, for the majority of readers of this review, it will not be a discovery that many “experts” perceive operations with options as a casino, by the principle of guessing / not guessing, (red / black). Of course, this is a private matter of each individual, but there is one important nuance. Such a “strategy” initially assumes that one who wants to receive income by entering into such transactions will necessarily lose his savings. For such a conclusion does not even need to understand the economy. As they say, they wanted a casino, get …

As a result, in the network, in specialized forums and other web resources, you can find a huge amount of angry reviews about all currently existing operations with options. Naturally, no one checks such information, which is the main reason for the formation of a negative opinion about all non-standard financial transactions.

To answer the question what forex options are, you need to find a precise definition of this category of the global financial market. Despite the huge amount of contradictory information, the spread of various rumors about this economic category and the unwillingness, at least superficially, to study this topic, financial experts were able to create a definition that in the most accessible form shows what options are.

So, options are a contract / arrangement that grants the right to a participant in a transaction to buy / sell a certain asset at a fixed price. The simplest example (a bit primitive, but allowing you to understand the most important thing). You know that your neighbor in a small village where your cottage is located is a pensioner who has a wonderful garden with the most delicious and environmentally safe apples. The neighbor has one bad habit (he likes to drink well), by offering his neighbor a dollar in April, you get the right in August to buy 10 kg of apples for 1 dollar too. And, despite the fact that during this period the cost of apples will be in the range of 4-7 dollars, you will receive this product at the agreed price.

Of course, in the financial market everything is more complicated, but if you learn to highlight the most important moments of the upcoming transaction, the essence of the operation will become as clear as in the example with apples.

The main indicators that should know a trader operating in the foreign exchange market

The key concepts of the foreign exchange market that every trader should understand are:

● Allocate call and put options (to buy / sell assets of interest).

● Option Strike – the price that is pledged at which you can carry out financial transactions.

● Expiration date is the life of the option.

● Bonus (option value).

● Exchange / OTC options. The first are carried out with the help of the exchange, the mediator is necessarily present. The second ones are performed directly, without dealers and intermediaries.

Also, participants in the global financial market distinguish the American and European options model. In the first case, the trader can pay off the option on any day (within the established period), and in the second – only on the specified date.

Advantages and disadvantages of forex options

Recent fx options will never be a stable source of income for you if you plan to make deals using your “magical intuition”. Every trader should understand that only a detailed study of all factors affecting the value of currencies will give him the opportunity to make accurate and reasonable forecasts.

Do not forget that currency options trading initially assumes that your intermediary is not interested in your victory. The money you earn is his lost profit. Traders who are ready to seriously engage in buying / selling forex options should take into account the recommendations of experienced participants in such transactions. They argue that making serious money by doing short-term operations is almost impossible. You must have realistic plans and the most accurate forecasts, calculated for the long term.

Among the main advantages of this option to make a profit, we can highlight the fact that a trader, even before concluding a deal, can predict his profit or loss. In financial markets, this possibility is rather rare.

Another important point that traders often forget is related to the fact that operations with options are not limited to the forex market. You have the opportunity to work in this direction using stocks, bonds, commodities, precious metals and other liquid assets. As mentioned above, the intermediary who helps you access key financial instruments is not interested in your correct predictions. But, at the same time, many well-known brokers, working “on reputation” can provide real assistance to their clients.

Many participants in the global financial market are alarmed by the lack of adequate legislation regulating the rights and obligations of all parties. Therefore, planning to conclude a serious deal, be sure to check whether it falls into the category of illegal operations.

To improve your knowledge of trading, read the article about Forex Trading facts.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”