Posted by forex at 2:46 AM
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1. Buy options in the following manner: open an account with a recognized foreign exchange dealer. A recognized dealer is authorized through the appropriate regulatory authority in the country you reside--not in the currency you are trading. Deposit at least the minimum required to open the account, and be prepared to wire more monies if you intend to actively trade or wish to increase the position you took on.
2. Buy currency options for speculation. By using options instead of forex, you gain the ability to know at the outset how many dollars you can lose. Currency options give you the right but not the responsibility to assume the gain or profit from either the rise or fall of a currency. For this right the trader pays a premium to the option seller. At the time of option expiration, the seller will exercise the option if it is profitable, or if the position is not profitable the investor will not exercise the option. The premium of the option declines to zero and the trader loses the initial investment. But no other capital is at risk, unlike futures or the direct purchase of a currency.
3. Buy currency options after determining how much of the option is in the money and how much is premium. If the market is unchanged, you will lose the value of the premium. For example, if an option costs $3 per thousand dollars of investment, the strike price is 100 yen to the dollar and the yen is at 100 at the time of trade, the entire $3 will be premium. You will need the option to rise to at least 103 in order to break even on the trade at the option maturity. At 104 you make $1. Anything below 103 is a partial loss. Anything at 100 or below is a complete loss.
4. Use the ability to buy currency options to lock in profits in related forex trading. Presume you have a profit from having shorted the Eurodollar. You could lock in the profit by purchasing the appropriate number of currency options equivalent to the trade. Your forex option can continue to run and make or lose money, but the money earned to date would be hedged or locked in.
5. Trade foreign currency options to hedge existing positions in a specific currency or to add a risk position by buying (or selling or shorting) foreign currency options in another currency. Foreign currency options can be purchased in all major currencies through recognized foreign exchange (forex) dealers on a 24/7 basis.