This online trading alternative gives you a lot of flexibility regarding market risk management and making investment decisions. You can speculate on fluctuating prices with the same contract by purchasing or selling put and call options at specific strike prices.
If you think a currency pair’s price will rise, you will buy a ‘call’ option, whereas if you expect its price to fall, then you’d purchase a ‘put’. The advantage of using options is that they allow traders greater flexibility than contracts for difference, which are very expensive to use in low volumes and therefore common among retail traders.
An options contract is a tool that grants the buyer the right, but not the obligation, to purchase or sell an asset at a predetermined price before or on a specific date. A call gives you this right when you think the rate will rise, and a put does the same if you expect its value to drop. This means that you can make money from both rising and falling prices by buying calls or puts, respectively.
Option trading entails a significant risk of loss. It is not suitable for all investors as the unique risks immanent to options trading may subject investors to potentially rapid and substantial losses.
You can compare brokers using the Investoo comparison table, which includes information on account opening requirements, minimum deposit amounts and more. Some brokers offer no-deposit bonuses or even free demo accounts to new customers, so be sure to check out each broker’s offer before signing up. Have a look at opening an account with a Saxo broker.
Some brokers allow you to trade with demo money for certain forex trading tools such as binary options. Still, you may have to deposit real money into your account before being allowed to start making trades with forex options. It would be best always to read the fine print (terms and conditions) associated with any bonus before taking advantage of it.
Once logged into your online forex options trading account, choose the currency pair you plan to trade on, then select an expiry time and an option type (call or put). Then, enter a parameter called ‘strike price’, which is the rate you expect the exchange rate to be by the time your contract expires.
The higher this number is, the more expensive each contract will be, so consider that higher strike prices mean much greater profit potential and greater risk. After choosing your desired parameters, click “buy” and wait for confirmation from your broker that your order has been fulfilled. You can decide when you want your option to expire, but you should generally try to set it for around 30 minutes before the close of trading to get accurate results.
Once your contract expires, whether or not you are profitable depends on how much or how little the currency value has changed since the time at which you purchased it. Keep in mind that if the price of an underlying currency stays below your strike rate, you will lose money even if its value hasn’t reached this level by expiration.
The best way to know when to sell is through a data feed that provides live rates and updates every few seconds, depending on what broker you work with. You should be able to enter these into your trading platform so that you can monitor your option’s progress on a second by second basis.
Last but not least, please note that due to the unstable nature of forex trading, prices may change extremely fast, making it difficult or impossible for us to buy or sell at the desired price. There is no guarantee of profit when doing forex options trading.
Once you are profitable with your contracts (and remember that this might not happen immediately), you should withdraw funds from your account back into whatever currency you want to keep in reserve. Other brokers will allow you to trade with less than $100 if required instead of having an inflated margin to meet the minimum deposit requirement. Once you have withdrawn your profits, you can continue following these steps to make more profit.