Binary Options – Trading Options in Foreign Exchange

Trading Options in Foreign Exchange

Have you ever stopped to consider how investors trade forex options? And what makes trading in forex options so appealing to major businesses and individual investors? There are a number of ways that money can be made from the forex market with one of them being binary options trading. Forex options are a type of security that allows people to buy and sell an underlying asset, such as stocks and bonds. It is essential that before you begin to trade you have some basic knowledge and concept about binary options. When you have obtained this then you can begin to trade.

Types of Forex Options Trading

The traditional call/put option and the single payment option trading (STOP) are the two major types of forex options available for traders. With the traditional option an investor has the right to buy an asset from a seller at a set price and time.

Traditional call/put option:

Call option: The investor buying the call option has the right to buy an agreed amount of a stock, financial instrument or commodity at an agreed price and a specified time period. If the asset increases in price the buyer makes a profit from the call option.

Put option: The investor buying the put option has the right to sell an agreed amount of a stock, financial instrument or commodity at an agreed price and a specified time period. As opposed to the call option that gives the investor the right to buy shares, the investor profits from a put option if the price of the asset decreases.

Single payment option trading:

This type of option gives the purchaser the right to set the conditions that must exist at the time of expiry to receive a payout and to set the amount of the payout the purchaser wants to receive. For example, if the buyer thinks that the EUR/USD will not go below 1.10 within 10 days, they can pay an amount to a broker and if the event happens can collect their payout after the 10 days. However, if the EUR/USD does drop below 1.10 the buyer loses their entire premium.

How to make Profits:

Forex options trading are more or less a process where money is made or lost depending on how accurate the prediction of the investor is. If you are looking to make a call option, you should choose an option whose value has risen solidly, and then predict how many points it will rise in the following day trading. If you are interested in forex options trading, it is important to study the trends of the market over a period of time before trading.

However, just as investing in other markets, there are risks involved with forex options trading. The market is a very unpredictable place due to the currencies being affected by economic events. Also by choosing the wrong options it is probable that you will lose money. Therefore serious attention should be paid to these risks, especially by the novice trader.

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