Foreign exchange market is always exposed to various risks like exchange rate risk and interest rate risk. Market volatility gives rise to sudden emotional decisions, which may not practically seem to coincide with the benefits as anticipated. Many look at FX trades as speculative way to make dollars, while many others utilize the market to cover up their other exposed risks. Hedging is commonly noticed in many Forex trades.
Archive for the ‘Foreign Exchange Options’ Category
While currency options are regarded as the best hedging instrument in any foreign exchange trades, it would be more interesting to know about what goes into deciding on the price of these options. Pricing of the options is grossly influenced by many factors, micro and macro. While these factors may or may not be related directly with the option, a writer of an option has to consider them all while pricing an option. Lets walk through few factors as listed below.
By its definition, an Option gives the buyer the right (not an obligation) to exercise the contract on the expiry date. This brings out a popular reason for the forex market players to choose trading in this instrument, that’s “liquidity”. High liquidity with full choice to not exercise the contract that’s not feasible, is what makes currency options a likely choice in Forex trading.
News can be traded in many ways. Few traders are using what is called forex box options for increasing their profits. Forex box options or simply forex options is the way in which we can place put on a sell option or place buy on a call option. This is when the prices of the pair are strike prices.
Most people relate ‘Options’ with Stock Markets. However, the Foreign Exchange Market, also known as Forex Market, also provides the opportunity to trade Options. The Forex Options give the traders and investors a large number of opportunities to increase their profit while limiting the risk.
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