What are the Option for Forex Trading?
Forex trading is shorter form of Foreign Exchange trading indicating trading the currencies on a common platform. Trading includes either buying or selling of the currencies. It is the largest and a fastest growing market in the world as a result of the globalization.
Like any transaction of buying and selling, you gain or lose on the difference in selling and purchase price of currency traded. Similar to the stock market trading forex trading also have the instrument called option for trading where the contract is entered by the parties for completion of the trade at a future date. The future date is chosen based on the predictability of the movement of the currency till date. Options are of two types put and call.
The following are the critical features of the Forex trading in options:
• Unlike the Capital market where you have many company’s shares to choose from, currency market has limited options to traded and there are some major currencies such as Euro, US Dolor, Pound, Yen, Aussie etc. where the majority of the trading happens.
• This is a 24 Hours trading platform where you can decide upon the time to trade
• The rise and fall of the value of the currency is decided by demand and supply of currencies which inturn is dependent on the foreign policies of the countries and the Export & Import volumes. There is a facility to utilize the currency pair instrument where the currency traded is also tied to some other currency. This would help reducing the losses due to fluctuations
• Minimum Incremental move of pair of currency pair is termed as pip.
• Trading limits are based on the pre-decided margins on the currency
• In case of any proposed position to be opted by the trader, the minimum margin is collected by the broker before allowing the trading positions
• Currencies such and US Dollar suffers lesser fluctuations as compared to the currencies of the developing economies
• There is a minimum contract size fixed for the options contract
• As the currency movement is not based on specific rules for moving up and down hence it is generally traded based on the assumptions and studies of the traders or the person dealing with currencies hence there is enormous risk involved in currency/Forex trading
• There are respective laws requiring the registrations and eligibility of the persons opting to trade in currency market
• Currency is highly speculative market and the players of this market include government agencies, speculators and the Investors.