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Have You Ever Traded Forex Options?

submitted: Apr 7th 2009 | by: Hass67
Total views: 30 | Word Count: 489 | | |

You must have heard about George Soros; the man who made a cool $1 Billion profit in just a few days with a single currency bet. In the early 1990s, he speculated on the price of British pound being too overvalued.

Acting on his hunch, he told his associate to purchase $10 Billion put and call options on British Pound and German Mark. It was a huge bet. He was in fact swaggering all the assets under his control on a single bet that may or may not pay off.

His knowledge of the currency markets was perfect. He was sure that his conviction that the Bank of England cannot sustain the overpriced British pound would come off right. Soon other currency speculators also joined. A huge selling pressure on British pound developed. Bank of England could not sustain the selling pressure too long and in a matter of 24 hours had to take British pound out of the European Monetary System and let it float freely.

The value of British pound plunged. George Soros gamble paid off. He is now famously called the Man who broke the Bank of England.

Forex markets are huge. There are many ways to profit from the volatility in the forex markets. A number of trading vehicles are available for you to try in the forex markets.

Spot, futures and options are three contracts that are traded on centralized exchanges and available to you as a retail forex trader. Swaps and Forwards are two more contracts traded in forex markets for hedging by large institutions like big banks, multinational corporations and off course hedge funds.

Lets discuss trading forex options. Options are derivative products that give you the right to buy or cell or certain underlying asset at a predetermined price known as a strike price before or on a certain date known as the exercise date.

The underlying asset in case of the forex options is the currency. Now, forex options give you the right but not the obligation to purchase/sell a certain amount of a particular currency on payment of a premium.

How do you profit from forex options? When the currency price is above/below the strike price, you can exercise your option to buy/sell that currency by buying/selling the currency at the strike price. The difference between the strike price and the currency market price is your profit.

If the currency market price is below/above the strike price of the forex options contract that you had purchased by paying a small premium; you can simply let the options contract expire. You only lose the premium.

If you want to try forex options then there is a very good forex options strategy that lets you profit regardless of the direction in which the currency market is moving.

This is a risk free method but it only guarantees 30-50% ROI. If you are satisfied with this much sure shot return you can try this method.

About the Author

Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in online trading especially options and forex trading. Read more about Forex Options Non Direction Trading System. Discover a revolutionary new Forex Robot

Article Source: Unique Financial Articles

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