More and more traders are choosing to trade forex options. This is because they manage to weigh the pros and cons and discover that the former far outweighs the latter. Currency options are an agreement or contract between the buyer of an option and the seller that entitles the buyer, without basic obligation, to buy or sell the option. It is the buyer who dictates the price of the stroke and the expiration date. If the expiration date comes, the buyer can choose to use his option and buy the currency or he can choose to just let the option expire worthlessly. All he has to pay is a premium.
Given this definition, foreign exchange options trading does bring many advantages over some of the financial instruments used on various stock exchanges. Some of the benefits mentioned are the limited risk involved in this transaction, unlimited earning potential, low cash advance, the flexibility feature provided to the trader, the ability to use the option as hedging over other positions to limit risk and provide many choices for SPOT options.
Just as there are professionals, so there are several shortcomings in currency options trading. The premium awarded to it may vary depending on the option date and the strike price whereby the reward as well as the risk ratio also vary. Once a trader buys a SPOT option, he may not change his mind to sell it. Predicting scenarios for a good time and date for an option may not be an easy task. And last but not least, the headline made you read this article. Apart from these, nothing bad can be said about currency option transactions.