Hi Traders,
As many of you know i was an FX dealer for many years and still do contract work with an FX Options Broker.
From time to time you may have seen me talk about FX Options in the chatroom and just at this moment we discussing short term CAD options ahead of the Employment data tonight and Bank of Canada decisions next week.
I am going to teach via this thread when to use FXOptions and show you examples and then update you how they panned out.
Why Hedge with FX Options?
Bank/Hedgefund Traders/Farmers/Exporters use FX Options to hedge to the downsides while limiting the loss if the markets go the direction you want.
Traders pay a premium to have the right to buy or sell at a selected rate for a selected time.
The current cost to sell USD/CAD for the next 13 hours at 1.0650 is 16 pips.
If i use this method to hedge and the CAD numbers numbers come in terrible i will only be down 16 pips whilst my open trade may be well ahead above 1.0700.
If i used a traditional Hedge i might be down -50 pips on the hedge in a uncomfortable situation.
Lets be clear - When i use a FX Option i still want the market to go my way but i am covered if it doesn't and i am only giving up small pips if its does.
How?
There are two types of normal FX Options. Calls for Buying rights and Puts for selling rights.
For this USD/CAD example i will buy a Put that gives me the right to sell USD/CAD at 1.0650 for a selected time.
When
The longer the time the larger the cost.
1 day is 16 pips
1 week is 37 pips
1 month is 59 pips
There is no right or wrong time each has a benefit,
1 day is cheap and covers you for the CAD employment data
1 week covers the CAD employment data and the Bank of Canada decision next week.
1 month covers CAD Data and next months US Non Fam Payrolls and general market movement.
Where?
Hardest part of FX options is finding a retail broker, 99% of forex brokers do not offer these. Some Professional general brokers like Saxobank and Interactive brokers give you access to ETO Options but not custom vanilla 1 day options. Also they require $5k-20k deposits so are not suitable for teaching.
I will be using the broker Options are Easy (part of Easy-Forex) which has created FX Options for Retail clients. I have introduced many traders in the chatroom to this broker/platform already and are good entry level broker for FX Options as first deposit can be $300 and first option is risk free if you lose you will get back the premium.
Use this link for the risk free trade promotion
Ok lets do some live trading examples.
As many of you know i was an FX dealer for many years and still do contract work with an FX Options Broker.
From time to time you may have seen me talk about FX Options in the chatroom and just at this moment we discussing short term CAD options ahead of the Employment data tonight and Bank of Canada decisions next week.
I am going to teach via this thread when to use FXOptions and show you examples and then update you how they panned out.
Why Hedge with FX Options?
Bank/Hedgefund Traders/Farmers/Exporters use FX Options to hedge to the downsides while limiting the loss if the markets go the direction you want.
Traders pay a premium to have the right to buy or sell at a selected rate for a selected time.
The current cost to sell USD/CAD for the next 13 hours at 1.0650 is 16 pips.
If i use this method to hedge and the CAD numbers numbers come in terrible i will only be down 16 pips whilst my open trade may be well ahead above 1.0700.
If i used a traditional Hedge i might be down -50 pips on the hedge in a uncomfortable situation.
Lets be clear - When i use a FX Option i still want the market to go my way but i am covered if it doesn't and i am only giving up small pips if its does.
How?
There are two types of normal FX Options. Calls for Buying rights and Puts for selling rights.
For this USD/CAD example i will buy a Put that gives me the right to sell USD/CAD at 1.0650 for a selected time.
When
The longer the time the larger the cost.
1 day is 16 pips
1 week is 37 pips
1 month is 59 pips
There is no right or wrong time each has a benefit,
1 day is cheap and covers you for the CAD employment data
1 week covers the CAD employment data and the Bank of Canada decision next week.
1 month covers CAD Data and next months US Non Fam Payrolls and general market movement.
Where?
Hardest part of FX options is finding a retail broker, 99% of forex brokers do not offer these. Some Professional general brokers like Saxobank and Interactive brokers give you access to ETO Options but not custom vanilla 1 day options. Also they require $5k-20k deposits so are not suitable for teaching.
I will be using the broker Options are Easy (part of Easy-Forex) which has created FX Options for Retail clients. I have introduced many traders in the chatroom to this broker/platform already and are good entry level broker for FX Options as first deposit can be $300 and first option is risk free if you lose you will get back the premium.
Use this link for the risk free trade promotion
Ok lets do some live trading examples.
Comment