/ / How to trade currencies with options and why you should stay away from Forex options

How to trade currencies with options and why you should stay away from Forex options

Would you like to trade in currency options or Forex Options?

Currencies can be interesting in many respects, first of all, the coverage of open transactions in another currency.

You could have purchased a foreign currency instrument and would like to protect yourself from currency risk.

In this case, the options could be an excellent hedging tool.

Avoid Forex Options

Our advice is to avoid unregulated Forex options. Options in over-the-counter markets are managed entirely by the broker.

Obviously, there is no Exchange or a regulator. So there are no third parties that control everything that happens during the negotiation.

The absence of a regulatory market allows the broker to create an option. This freedom translates into greater autonomy for the trader.

You have the complete freedom to choose the strike and the expiry date, but this freedom is paid.

Firstly, the spreads of these options are generally excessive, even reaching ten pips.

The spread is the highest cost when you buy options. Considering all,o the currencies in recent years have reduced volatility. A high spread excessively reduces our profits.

We think you don’t like to go running with a heavy backpack on your back.

It’s not all fact the broker is my counterpart when I suffer a loss he earns. This is not the way you like to make investments.

So how can you use forex options?

One of the best ways to trade forex options and use futures options. Options on futures have very low spreads and are regulated.

These options will have a high value; for smaller portfolios, we can use ETFs.

Options on currency ETFs are generally liquid and have a relatively low spread.

There is not much liquidity on the distant strikes, and therefore care must be taken knowing that we will sometimes bring the operation to an end.


More Resources:  Investopedia