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Can You Make Money in Forex without Actually Trading?
As the relative values of international currencies go up and down, Forex traders buy and sell with the goal of making a profit. Successful Forex trading requires paying attention to the fundamentals that drive prices and short term changes in market sentiment that cause daily profitable fluctuations. And usually, it requires buying and selling currencies. But, can you make money in Forex without actually trading? The answer is that you can. Forex options trading allows a trader to buy and sell contracts without ever holding the currency in question.
There are three good reasons for Forex options trading. In international business transactions Forex options trading helps hedge currency risk. In volatile markets Forex options trading both helps limit risk while providing profit potential. And traders can use Forex options trading to provide extra leverage for their trading capital. Here are snapshots of each reason for Forex options trading.
How do options work in the world of Forex? Options come in two general types, calls and puts.
Call Options
A call option gives the buyer the right to purchase one currency with another at a set price, called the strike price. This price is good throughout the duration of the option contract. A seller of a call option gets paid a premium for taking on a risk. The seller is obligated to sell one currency for another at the set price. The price of the contract, the premium, will depend on how what the market thinks about the relative pricing of the two currencies and what it thinks will happen during the duration of the option contract.
A trader can make money without actually trading by accurately predicting that a currency such as the dollar will rise in value against the yen, pound, or euro. He or she buys a call option and when the expected price increase occurs, he or she sells the contract for a profit, meanwhile never trading either currency.
2. As the relative values of international
currencies go up and down, Forex
traders buy and sell with the goal of
making a profit.
3. Successful Forex trading requires
paying attention to the fundamentals
that drive prices and short term
changes in market sentiment that
cause daily profitable fluctuations.
15. A call option gives the buyer the right
to purchase one currency with another
at a set price, called the strike price.
16. This price is good throughout the
duration of the option contract.
17. A seller of a call option gets paid a
premium for taking on a risk.
18. The seller is obligated to sell one
currency for another at the set price.
19. The price of the contract, the premium,
will depend on how what the market
thinks about the relative pricing of the
two currencies and what it thinks will
happen during the duration of the
option contract.
20. A trader can make money without
actually trading by accurately
predicting that a currency such as the
dollar will rise in value against the yen,
pound, or euro.
21. He or she buys a call option and when
the expected price increase occurs, he
or she sells the contract for a profit,
meanwhile never trading either
currency.
22. Likewise a trader can make money
without actually trading by selling an
option contract.
23. Over the long run options sellers tend
to make more money than option
buyers.
24. But, because the option seller is
obligated to sell no matter what has
happens in the Forex market,
occasional losses can be horrific.
25. By in large, selling options is the
business of professional options
traders and large institutions with lots
of money.
26. Professional traders will commonly
look for a constellation of option trades
that include both selling and buying
calls.
32. One way to protect his position in the
US dollar and not lose out on further
gains would be to buy puts on the
dollar with the euro.
33. For the price of the option the trader
can sell dollars for euros at the set
contract price for the duration of the
contract.
34. The seller of a put is obligated to sell if
the buyer executes the contract.
35. The buyer will only execute the
contract if doing so is profitable.
36. A last way of making money in Forex
without actually trading is to sell calls
or puts on a currency that one owns.
37. Traders who do not believe that a big
change will happen in the value of the
currency can routinely make money
and not trade their currency position
several times a year.
