Forex Option Trading

AAA

DEFINITION of 'Forex Option Trading'

A security that allows currency traders to realize gains without having to purchase the underlying currency pair. By incorporating leverage, forex options magnify returns and set a firm downside risk level. Alternatively, currency trading options can be held alongside the underlying forex pair to lock in profits or minimize risk. In this case, limiting the upside potential is usually necessary for capping the downside as well.

INVESTOPEDIA EXPLAINS 'Forex Option Trading'

Not all retail forex brokers provide the opportunity for options trading. As such, retail forex traders should research any broker they intend on using.

Because of the risk of loss that is associated with writing options, most retail forex brokers do not allow traders to sell options contracts without high levels of capital for protection.

RELATED TERMS
  1. Interbank Market

    The financial system and trading of currencies among banks and ...
  2. Authorized Forex Dealer

    Any type of financial institution that has received authorization ...
  3. Forex Hedge

    A transaction implemented by a forex trader to protect an existing ...
  4. Cable

    Slang used among forex traders referring to the exchange rate ...
  5. USD

    In currencies, this is the abbreviation for the U.S. dollar. ...
  6. Quote Currency

    The second currency quoted in a currency pair in forex. In a ...
Related Articles
  1. thinkstock|istock
    Options & Futures

    A Primer On The Forex Market

  2. Forex Education

    Forex Taxation Basics

  3. Forex Education

    Getting Started In Foreign Exchange ...

  4. Options & Futures

    Getting Started In Forex Options

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center