An investor, as you, is a well-educated risk taker. An investor always loves the adventures in business, especially in a fast-paced market as with foreign exchange (FX) market. The ups and downs of price movement are really engaging for investors. In their eyes, FX is similar to roller coaster, very amusing. Lucky for them, FX as the largest financial market provides several instruments to trade; one of it is FX options trading.
FX options trading is the most liquid option market compared to other options in financial market. It is not a wonder since the mother of options trading is foreign exchange market, the largest and most liquid financial market. FX option itself is mostly traded over-the-counter but some of the exchanges also trade options, they are Chicago Mercantile Exchange, International Security Exchange and Philadelphia Stock Exchange.
Some investors, both individual and institutional, get into FX options trading because they know the benefit and the risk involved in options trading. They have equipped themselves with an arsenal of options trading strategies. They keep on doing it for years for their own purpose. But what exactly are the purposes? Why do they trade FX options? Possibly you can find out some reasons but mainly there are two options of options usage:
- FX options can be used for hedging purpose. Some investors utilize options to hedge their trading position in FX cash (spot) market. They use it together with stop-loss level in cash market. Therefore, if the stop-loss level is historically being hit, then as the result their options trading will generate unlimited profit. Some extreme traders even replace the stop-loss level with options.
- FX optionsis another good place to speculate and generate profit. It should be the most common motivation for every investors and traders. We know that we can reduce the risk while trading in the options market. With good strategies we can create zero premium cost or at least it is the only loss potential we have. Sounds interesting? Some traders also optimize options during important economic data and market news. You can be as good as them if you want.
However bear in mind that we have to be careful as FX options trading is not for rookies. Asking the experts on every aspect of FX options will be a precious thing to do without you wanting to get hurt in the market. Know it and love it if you want. Be ready for the good and the bad as FX options trading has it all.