While many investors’ portfolios consist of investments such as bonds, stocks, and mutual funds, another type of security called forex options exists which provides an investor with a whole new world of opportunity.

can be traced back to ancient times, where merchants would pay a small amount of capital on ocean bound cargo. When the shipment arrived, the merchant would have the first opportunity to purchase the goods. However, in the modern day, with the opening of the Chicago Board of Options Exchange in 1973, options trading contract terms became standardized. This made them accessible to the average investor and thus resulted in their exponential rise. Today, the main way in which investors trade on assets and currency options is through forex trading online.

Whether you are a complete beginner to the world of investing or whether you have been investing for many years, options trading is an excellent way to manage risk whilst growing your assets. Due to the fact that there are a wide range of strategies which can be used when dealing with these securities, they are suitable for all investors.

What is Options Trading?

Options are classified as financial instruments which derive their value from a different type of financial measure or underlying asset. Or to put it simply, options are contracts which are agreed upon between the buyer and the seller, giving the buyer the right to the purchase or sale of an underlying asset, with the price as well as the validity period specified.

If an investor buys the underlying asset at a price that is less than the price which it is at on the market, the option is deemed to have „intrinsic value.” If an investor is in the position to sell an underlying asset at a price that is more than its market value, it is also deemed to have „intrinsic value.”

Therefore, the goal of the investor is to either „call” on the market, meaning that the shares will be sold at a price which is less than the share price as stated on the day the investor wants to sell, or an investor might be in the position to „put” their shares on the market at a price which is higher than today’s share price.

„Call” options are often purchased during the times an investor believes that the underlying share price will increase as this will result in a profit. „Put” options on the other hand are chosen when an investor thinks that the underlying share price will decrease.

Advantages of Options Trading

- Thanks to a wide range of strategies which can be used, from low risk to high risk when trading currency options and assets, an investor is given flexibility. Trading options are also flexible enough to enable an investor to profit on any market condition, regardless as to whether stock prices are decreasing or increasing.

- There is no need to commit to a trade to gain leverage.

- When the modification of an underlying asset is not advantageous, position against any price fluctuations can be protected.

- Generally, commissions are much lower than those charged for trading stocks. Furthermore, thanks to the high level of competition between brokerage firms, discounts are available resulting in even lower commissions.

- $2000 will get an investor a lot further in the options market compared to the stock market. This is because an investor can take a position even with very low starting capital.

Disadvantages of Options Trading

- Due to the high level of maintenance and observation that is required in forex trading online, it can be regarded as a complex process.

- Thanks to the wide range of prices that are available, some investors will suffer from a very low level of liquidity. This can make trading more difficult.

- As trading forex options is time sensitive, it could lead to a situation where the majority of options expire making them worthless. However, keep in mind that this will only occur with investors who purchase options.

What to Keep in Mind When Trading Options

- An understanding of what makes a position gain as well as lose value

- Employing the appropriate trade mechanics when creating a position

- The identification of trading rules and requirements which are needed to purchase securities, whether that be currency options or assets.

- The market conditions when analyzing a trade (these can easily be found on any forex trading online broker’s platform).