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Forex Trading
Discover the range of markets and learn how they work - with IG Academy's online course. Compare features. The risks of loss from investing in CFDs can be substantial and the value of your investments may fluctuate. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
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Forex Trading Vs. Options - Discover The Difference
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What is FX options trading?
Learn to trade Strategy and planning What are currency options and how do you trade them? What are currency options and how do you trade them?
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Callum Cliffe Financial writer , London. What are currency or forex options? Implied volatility will affect the price of an options contract In the money — an options contract is in the money when it can be exercised for a profit At the money — an options contract is at the money when its strike price is the same or similar to the price of the underlying market — meaning it could expire with value, or worthless Out of the money — an options contract is out of the money when it cannot be exercised for a profit Learn more about options trading How do currency options work?
There is more information about the mechanics of buying or selling call and put options below.
How to trade forex options To trade forex options, follow the steps below: Create or log in to your IG account Choose a currency market to trade Decide whether to trade calls or puts Take steps to manage your risk Open and monitor your position Why trade currency options with IG? Explore the markets with our free course Discover the range of markets and learn how they work - with IG Academy's online course.
Try IG Academy. You might be interested in…. How much does trading cost?
Find out what charges your trades could incur with our transparent fee structure. In terms of a simple currency hedging strategy using options, consider the situation of a mining goods exporter in Australia that has an anticipated, although not yet certain, shipment of mining products intended to be sent for further refinement to the United States where they will be sold for U.
Dollar put option in the amount of the anticipated value of that shipment for which they would then pay a premium in advance. Alternatively, to save on the cost of premium, the exporter could only buy an option out to when any uncertainty about the shipment and its destination was likely to be removed and its size was expected to become virtually assured. In this case, they could then replace the option with a forward contract to sell U. Dollars and buy Australian dollars in the now-known size of the deal. Forex options also make a useful speculative vehicle for institutional strategic traders to obtain interesting profit and loss profiles, especially when trading on medium term market views.
Even personal forex traders dealing in smaller sizes can trade currency options on futures exchanges like the Chicago IMM, as well as through some retail forex brokerages. This is similar to a binary or digital exotic currency option. Such options are also often known as plain vanilla or just vanilla currency options to distinguish them from the more exotic option varieties covered in a later section of this course.
This style of option can only be exercised on its expiration date up to a certain specific cutoff time, usually 3pm Tokyo, London or New York time. Nevertheless, the most common style for options on currency futures, such as those traded on the Chicago IMM exchange, is known as American style.
Forex Option and Currency Trading Options
This style of option can be exercised at any time up to and including its expiration date. Nevertheless, the early exercise of American Style options usually only makes sense for deep in the money call options on the high interest rate currency, and selling the option instead will usually be the better choice in most cases.
Forex fundamental analysis. A strategy on how to use currency options expiries for forex trading. See a short description of many more forex trading derivatives, as well as variants of currency options.