Forex Option

The Forex options are very popular among the currency traders. The currency traders can bring down the potential losses through these options. There are several types of Forex options. The traditional options consist of �call� and �put� and the untraditional options consist of the �spot�. These Forex options share many things with the stock options and at the same time there are some differences also.
There is a common feeling that the options are only related to the stock market and the Forex market has nothing to do with the options. But the Forex market has its own sets of options. These Forex options provide the currency trader with the right to trade in certain currencies at a particular rate and the time span of the options are also decided at the time of the purchase of the option. Once the maturity time is over, the option losses its value.

Among the traditional Forex options there are the call and the put. It is a unique rule of the Forex traditional options that both the call and the put are purchased together.

The traditional Forex option provides the currency trader with the opportunity to purchase a particular currency at a certain rate and within a certain period. Now, if the exchange rate of the currency goes up in the valid period the Forex option holder gets the profit and when the particular currency losses its value against another particular currency, the option becomes invalid automatically.
There are two types of traditional Forex option, which are provided by the currency brokers. These are the American Style and the European style. The currency traders prefer the American style because it can be used at any point of time until it expires. On the other hand, the European style allows the use of the option only at the point when it gets expired.

The untraditional or the spot options allow the currency trader to assume a scenario where a particular currency is going to break against another particular currency in a limited period of time. If that happens the currency trader gets the advantage and if not the currency trader losses the premium.

All the options are purchased by a certain amount of premium. The premiums for the traditional Forex options are low but the premiums for the non-traditional Forex options are quite high.