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.
Forex box is a new wave technique in which a trader can put in his own estimated support and resistance levels and place it within a box. What returns he fetches would depend a lot on how close or far to the box is the real stock movement. So a player can go for speculation, hedging and a lot more things.
Traders love buying a currency pair with the derivatives. This gives them leverage higher than 200:1. The great point is that traders love to take it farther in terms of leverage and sometime speculate without any active hedging. Playing the boxes with futures and forwards has become a latest fad with the currency dealers.
Okay! Let us be a little more elaborate about the boxes. A trader and a broker come to a consensus. A trader uses all the technical tools of analysis, fundamental analysis and may be ideas from news trading to make a box. Now he either suggests to the broker that a given trading currency would hit the box or it would miss the box. In the event of the trader being right, he gets an amount from the broker. This is pre-stipulated. If the broker is right, trader’s entire amount is seized. The trader might get a small percentage back if the broker decides to resell prior to the expiration of the box’s term in the currency market.
Now the forex box options can be used for trading in a currency fluctuations over few minutes, at the most it can be a few hours. With more traditional boxes in the past, it could have been week or even month. Trader’s benefit- he establishes the price range for which a currency would work within a given time period. Broker’s benefit- he alone determines what the payout in the event of a trader’s victory will be.
Traders can look to use the forex box options at times the market shows heavy fluctuations because at these times the chances of getting a box-hit are far higher. Now, this is more the trend when a news report is being released. A major news report impacts the forex market to reverse or rally in a big way. Forex box option aims to measure and prison the price fluctuation within it for the trader. The returns are obviously higher if a trader plays for a miss in times of heavy price fluctuation within the proposed price range.
The underlying may miss the box by as less as 5 pips or hit it through 5 pips for a given moving average. The idea is to predict these. The difference between these two words and its prediction can make or break the game for you.