Forex Currency Options Trading Basics

Trading Forex Currency Options brings an good versatility to online currency trading. Due to the fact that trading currency options cost less than their underlying asset which is the currency pair, currency options gives trades a high upside approach while at the same time offers limited downside risks. Options are made up of two types. CALL Option and PUT Option.

A CALL Option gives traders the right to BUY an underlying forex pair
A PUT Option on the other hand gives traders the right to SELL an underlying forex pair

With forex currency options trading, traders can BUY or SELL the underlying currency pair at a specified strike price up until the option expires. The BUY and SELL is done via a CALL and PUT option respectively.

By placing a CALL Option, the trader speculates that the forex currency pair is most likely to increase in price. A PUT option is when the trader believes that the forex currency pair will most likely fall in price. The rise or fall in price is made in reference to the current market price.

Forex currency options trading, requires no margin and neither is there a need for using any leverage. Due to the fact that the risks with forex currency options trading is fixed, this makes for an attractive low risk investment opportunity for traders.

How can you profit with Currency options trading

The maximum potential loss when trading forex currency options is only as high as the premium that is paid in order to place a CALL or PUT option. The potential to profit with forex currency options trading is literally unlimited. Refer to the two examples below to see the profit/loss potential of forex currency options trading.

Call Option Maturity

Options are calculated based on the following formula:

Calculating CALL Option
Profit = (Price of the currency pair at the time of expiry – Strike) x Tick Value – Premium

Calculating PUT Option
Profit = (Strike – Price of currency pair at the time of expiry) x Tick Value – Premium

Forex Currency Options Trading Example

A trader places a CALL option on the EUR/USD forex currency pair with a Strike price of 1.4800 at a premium of $150. When the EUR/USD Option expires the price is at 1.5400. Based on this scenario, the profit the trader makes is calculated as (1.5400 – 1.4800) x $1.00 – $150;
which amounts to 600 pips x $1.00 – $150 which equals $600 – $150 = $450.

A $450 profit on a $150 (premium) investment.

All the options placed are automatically executed at the expiry time with no dealer intervention. The premiums and profits are automatically credited into your trading account.

Where to trade forex currency options

Forex currency options trading is offered by GCI Financial forex broker. Traders can either trade on a demo account to get acquainted with currency options trading or create a live trading account. The trading platform used is GCI Financial’s ICTS trading platform powered by ActTrader, a downloadable platform that is quick and easy to install. Details on GCI Financial Forex broker review.

How to trade Forex Currency Options

GCI Financial forex broker allows traders the unique opportunity to forex currency options trading on the ICTS Forex trading platform. To trade forex currency options, simply select the forex currency pir you want to trade and right click on the instrument rate on either the SELL or BUY price, and select “Buy Option”

Forex Currency Options
Forex Currency Options

You will then be shown a window where you need to specify the strike price, expiry time, amount or lots and also modify the type of option (CALL or PUT) and click ‘Ok’

Forex Currency Options - CALL/PUT
Forex Currency Options - CALL/PUT

Traders can view their closed option positions and account statments by clicking on “Windows” > “Reports” tab.

Why trade forex currency options

  • Build a diversified trading portfolio besides forex and commodities trading
  • Fixed risks allows traders for good risk and money management
  • Fast learning curve and free DEMO account to get familiar with forex currency options trading
  • No dealer intervention and automatic closure of positions at time of expiry
  • Potential to make fast profits at any specified expiry time
  • Sell the option at any time before it reaches the expiry time

Trade Forex Currency options now with GCI Financial

About the author: Editorial Team

ForexPromos Editorial Team is comprised of a selection of hand picked editors that bring you the latest breaking news from the financial markets. We also provide forex educative articles as well as comprehensive fx broker reviews.

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