Everything you need to know about Forex Options
Here's what you need to know before you start trading OptionsLearn more
Why is everyone excited about Forex Options?
Options offer a more sensible way to trade volatile situations. Wouldn't you like to be able to trade without the fear of getting stopped out straight away? Well, that's exactly what you can do with Options.
Sometimes it's best to trade spot FX, but there are times when Options help control your risk. Take a look at this chart. The spot is in free-fall. When will it bounce? A counter-trend spot trader would have been stopped out in minutes, but the canny Options trader will have a successful trade because he uses time (not price) as his stop loss.
In some situations, the Option can pay out multiple times as the spot finds its new level. In the example above there are multiple opportunities to buy and sell, thanks to the Option.
What are Forex Options?
When you buy an Option you get the RIGHT to buy or the RIGHT to sell. You don't have to. If you buy an Option to buy, known as a CALL, then if the spot falls, even a long way, you don't have to buy it after all! You pay a fixed price for the Option, and that is the most you can lose. You can't get stopped out on price movements. You pay for the time to be proved right instead. You can usually afford to buy more Options than spot, so there is leverage involved as well.
What's the difference between Forex Options and Binary Options?
AVOID Binary Options. There is a reason they are banned in many jurisdictions. With binaries, you simply guess "Higher" or "Lower", and you have no visibility of the real price you are paying. If you see Option prices in pips on the screen and not "UP" and "DOWN" or "HIGHER" AND "LOWER", then you are in the safer world of Forex Options. Forex Options have a STRIKE price. So, we refer to a Call as "the 1.30 Call", meaning you have the right to buy at 1.30. If you can see these different strikes and prices, then you are in the right place.
Watch my short video below and I'll explain the differences between Forex Options and Binary Options in more detail.
Who is Paul Varcoe?
Paul started as a trainee Options trader on the Stock Exchange floor in London in 1987. He has traded Options, Futures, Stocks, and Indexes, mainly with his own money, so he understands the point of view of the retail trader. He believes strongly in education being the key to being part of the 21% of traders who make money, rather than the 79% who lose. As well as Options, Paul knows about Stocks, Indexes, Algo trading, and programming.
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