Forex Option Trading

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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.

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RELATED FAQS
  1. How does the term 'in the money' describe the moneyness of an option?

    In options trading, the term "moneyness" refers to the relationship between an option contract's strike price and the current ... Read Full Answer >>
  2. What is the difference between in the money and out of the money?

    In options trading, the difference between "in the money" and "out of the money" is a matter of the strike price's position ... Read Full Answer >>
  3. Is a person registered for Financial Instruments Business eligible to conduct both ...

    A person in the financial instruments business, as defined by the Financial Instruments and Exchange Law, is allowed to engage ... Read Full Answer >>
  4. If a long call is owned on the record date of a stock, is the owner of the option ...

    The owner of a long call for a stock is entitled to a dividend only if the option is exercised prior to the ex-dividend date, ... Read Full Answer >>
  5. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  6. What does negative vega mean for credit spreads?

    Greek vega measures an option's sensitivity with respect to a change in the underlying asset's volatility. The vega of an ... Read Full Answer >>
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