How To Make Money From Currency Option Trading?
Currency trading is a huge market around the world due to globalization. As the trading in this market has increased it has caused the interest in currency option trading to grow as well. Options on currencies give the holder the right to buy(call) the currency at a set price called the strike price. The option has a set expiration date. If the currency price moves higher before expiration the option can be exercised. The currency is purchased to be resold in the market at a higer price. Put options are purchased if the currency price is expected to fall. If it does, the holder can purchase the currency in the market and put(sell) it at the higher strike price.
One type of option contract used by speculators and hedgers is the traditional option. This contract requires the trader to set a strike price and an expiration date. These two factors along with the currency volatility level are used to determine the premium the broker charges for the option. If the premium is agreed upon the transaction is completed. If the currency pair being traded is the USD/CHF and the trader thinks the Swiss franc will move up against the dollar he/she will purchase a put on the dollar. If the prediction is correct in the set time frame, the trader will purchase the dollar and put(sell) it at the strike price realizing a profit.
SPOT contracts are used to make trading a bit easier. The actual purchase of the currency is not required in this type of contract. If the currency you purchased a call on moves up the profits from the trade are credited to your account automatically. The same thing happens with the put. The profit is simply determined and the amount deposited into your trading account. If your trade does not work, the only amount you lose is the premium.
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.
Hedging is a common use of currency option trading. People or corporations doing business with companies in foreign countries can purchase options to protect themselves from loses they may incur on in-process business. If prices fluctuate on currencies to much before transactions are completed they may lose the profits generated by them.
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.
Currency option trading can be a hugely profitable experience if your predictions are correct because premiums are lower than deposits for the actual currencies. The time frame restraint is a challenge though. If your learn to make accurate calls on price movement however, you can make large profits. - 23208
One type of option contract used by speculators and hedgers is the traditional option. This contract requires the trader to set a strike price and an expiration date. These two factors along with the currency volatility level are used to determine the premium the broker charges for the option. If the premium is agreed upon the transaction is completed. If the currency pair being traded is the USD/CHF and the trader thinks the Swiss franc will move up against the dollar he/she will purchase a put on the dollar. If the prediction is correct in the set time frame, the trader will purchase the dollar and put(sell) it at the strike price realizing a profit.
SPOT contracts are used to make trading a bit easier. The actual purchase of the currency is not required in this type of contract. If the currency you purchased a call on moves up the profits from the trade are credited to your account automatically. The same thing happens with the put. The profit is simply determined and the amount deposited into your trading account. If your trade does not work, the only amount you lose is the premium.
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.
Hedging is a common use of currency option trading. People or corporations doing business with companies in foreign countries can purchase options to protect themselves from loses they may incur on in-process business. If prices fluctuate on currencies to much before transactions are completed they may lose the profits generated by them.
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.
Currency option trading can be a hugely profitable experience if your predictions are correct because premiums are lower than deposits for the actual currencies. The time frame restraint is a challenge though. If your learn to make accurate calls on price movement however, you can make large profits. - 23208
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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 @ 4:06 AM
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