What Are the Pros and Cons in Trading Forex Options?

More and more traders are choosing to trade forex options. This is because they manage to weigh the pros and cons and they find that the former far outweighs the latter. Currency options is an agreement or a contract between the option buyer and the seller that gives the buyer the right, with no underlying obligation, to buy or sell an option. It is the buyer that dictates the strike price and the expiry date of it. If the expiration date comes, the buyer may choose to exercise his option and buy the currency or he may opt to just let the option expire worthless. All he needs to pay for is the premium.

Given this definition, forex option trading indeed poses many advantages over some of the financial instruments used in various exchanges. Some of the said advantages are the limited risk involve in this transaction, the unlimited potential for earnings, the low up-front cash requirement, the flexibility feature provided to the trader, the possibility to use the option as a hedge over other positions to limit risk and the provision of many choices for SPOT options.

Just as there are pros, there are also a few cons in currency option trading. The premium assigned to it may vary according to the option’s date and strike price making the reward as well as the risk ratio also vary. Once the trader purchases a SPOT option, he may not change his mind to sell it. Predicting the scenario for a good time and date for the option may not be an easy task. Lastly, this is sometimes taken as going against the odds. Other than these, nothing bad can be said about currency option transactions.

Source by Timothy Stevens

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