How to Trade FX Options
The Foreign Exchange Market, much like the common Stock Exchange, allows you to invest in options. Unlike the companies you can invest in through the Stock Exchange, the Foreign Exchange Market actually leverages different types of currency against each other. Options don't automatically give you stock--instead they let you invest if the market hits a certain high or low before a set expiration date. American-style options can be used at any time, while European-style options must be used at the moment of expiration. You can also trade SPOT options on the Foreign Exchange. These allow you to dictate a scenario--you receive the stock if the scenario comes to pass.
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Instructions
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Determine whether you want to invest in call options or SPOT options. Call options let you buy stock either during the time period before the expiration date for your options or on the date of expiration. Put options let you sell stock either during the time period before the expiration date for your options or on the date of expiration. SPOT options require that you dictate a scenario--like currency X will reach a certain trading value by a certain date--and then you receive the stock if that exact thing happens.
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Contact a broker who deals in the Foreign Exchange Market. Most brokers will work with this market, as it is one of the largest in the world and is not regulated by the Securities and Exchange Commission.
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Tell your broker how you want to exercise your call, put, or SPOT options. Decide on a price that the stock will be sold or purchased at and when you want the options you're purchasing to expire.
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Have your broker exercise the trade. Watch the market carefully during your expiration period and be sure to call your broker if you decide to exercise your option to buy or sell on the Foreign Exchange during that time period.
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References
- Photo Credit Foreign Currency image by Stephanie Mueller from Fotolia.com
