http://www.options-trading-education.com/24439/how-do-foreign-currency-options-work/ How do Foreign Currency Options Work? Options trading and all of its advantages can be applied to stocks, commodities, futures and foreign currency trading. How do foreign currency options work and how can you make money in Forex options trading? Foreign Currency Options Foreign currency options trading follows the same rules and tactics as stock options trading and commodity options trading. In using options to trade foreign currencies traders enjoy the same benefits of options trading that they enjoy when trading other equities. Because traders only invest a premium when they buy an options contract they limit their risk to the amount of the premium. Because in foreign currency options trading a trader can exit his position by executing the opposite contract he need never purchase the currency in question. His percentage of return on invested capital can be substantially higher than for someone who buys and sells currency directly. In addition a trader who holds a currency such as the US dollar can sell calls on the dollar with any other currency. He will do this if he believes that the dollar will not rise in price. If he is correct he will collect the premium paid for the options contract and retain his investment capital. If he reads the market incorrectly he will need to sell his dollars for another currency as the buyer of the options contract will execute the contract and buy his dollars with Yen, Euros, British Pounds, or whatever currency was paired with the dollar in the options contract. He will still gain his premium but might miss out on a rally in the dollar. Foreign Currency Calls and Puts When a currency trader believes that the euro will go up in relation to the US dollar he can buy euros with dollars. Or he can buy calls on the Euro with dollars. In either case he benefits if the euro rises. However, if the euro falls against the dollar the person who buys euros loses money and the loss can be significant. However, the person who buys calls on the euro in this case will only lose the premium paid for the options contract. Likewise if a trader believes that the euro will fall compared the dollar he can buy puts on the euro with dollars. If the euro falls he wins and if the euro rises his loss is limited to the premium paid for the contract.

1. By www.Options-Trading-Education.com

2. Options trading and all of its
advantages can be applied to
stocks, commodities, futures and
foreign currency trading.

3. How do foreign currency options
work and how can you make
money in Forex options trading?

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5. Foreign Currency Options

6. Foreign currency options trading
follows the same rules and
tactics as stock options trading
and commodity options trading.

7. In using options to trade foreign
currencies traders enjoy the
same benefits of options trading
that they enjoy when trading
other equities.

8. Because traders only invest a
premium when they buy an
options contract they limit their
risk to the amount of the
premium.

9. Because in foreign currency
options trading a trader can exit
his position by executing the
opposite contract he need never
purchase the currency in
question.

10. His percentage of return on
invested capital can be
substantially higher than for
someone who buys and sells
currency directly.

11. In addition a trader who holds a
currency such as the US dollar
can sell calls on the dollar with
any other currency.

12. He will do this if he believes that
the dollar will not rise in price.

13. If he is correct he will collect the
premium paid for the options
contract and retain his
investment capital.

14. If he reads the market
incorrectly he will need to sell
his dollars for another currency
as the buyer of the options
contract will execute the
contract and buy his dollars with
Yen, Euros, British Pounds, or
whatever currency was paired
with the dollar in the options
contract.

15. He will still gain his premium but
might miss out on a rally in the
dollar.

16. Foreign Currency Calls
and Puts

17. When a currency trader believes
that the euro will go up in
relation to the US dollar he can
buy euros with dollars.

18. Or he can buy calls on the Euro
with dollars.

19. In either case he benefits if the
euro rises.

20. However, if the euro falls against
the dollar the person who buys
euros loses money and the loss
can be significant.

21. However, the person who buys
calls on the euro in this case will
only lose the premium paid for
the options contract.

22. Likewise if a trader believes that
the euro will fall compared the
dollar he can buy puts on the
euro with dollars.

23. If the euro falls he wins and if
the euro rises his loss is limited
to the premium paid for the
contract.

24. Fundamentals

25. The fundamentals that drive
currency value include the
strength of a nation’s economy,
its balance of trade and
monetary policy.

26. Foreign currency options traders
do well to be well verses in these
factors when relying on
fundamentals for making trading
decisions.

27. Technical Trading

28. Although fundamentals
determine the final value in a
currency pair such as the USD
EUR technical factors drive
minute by minute prices.

29. Traders learn to use statistical
analysis tools to read the ebb and
flow of the market and trade
foreign currency options
accordingly.

30. For more about how foreign
currency options work read these
articles.

31. Forex Options Trading
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