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Definition: Forex Option Trading
Forex Option Trading allows currency traders to realize gains without having to purchase the particular concerned currency option. Forex option trading helps maximise returns, through the gains realized as a result of the trading, and also helps minimise the risk involved.
Basically an option is something which gives the owner the right, but not the obligation to buy/ sell an asset or financial instrument, at a specified price, known as a strike price, on or before a specified date.
The Forex market is a market in which these financial securities are traded. The forex market is the largest market in the world, in terms of the value of money traded.
Types of Forex Options:
The two primary types of options available are, namely: The ‘call’ and ‘put’ option.
A trader buys an option for USD 1000 (called USD put). If price of that option goes below $ 1000, let’s say $ 900, the only loss to the trader is the premium. However if price goes above $ 1000 like $ 1300 the trader can exercise his option, and gain by getting the lot for the original amount i.e. $1000 itself. This could be then sold for a profit