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What are FX Options and what do you need to do to try them out? In today's article we will take a closer look at the most recent innovation introduced among our trading instruments. FX Options combine the features of the ordinary and Forex options. Does it already seem interesting? Read the article to find out more about this unique trading tool.
Why are they special?
Unlike binary options (where the profitability of each transaction is predetermined), FX options can generate an unlimited gain. While it is possible to lose only the amount invested in the transaction, the potential profit has no limits. This feature can be exploited for an excellent trading strategy. When you put a limit on your losses and at the same time allow the profit to rise without limit, it is not necessary to win 50% of the transactions. It will be enough to make sure that the average payout is higher than the average loss and will therefore remain in positive territory.
Select one of the 5 most popular cryptocurrency pairs (and many more coming). This trading tool is built around operating prices, which allow you to find a balance between profitability and risk.
How to trade FX options?
There are various aspects that you need to know before venturing into trading with the FX options. The first, of course, is how to set up the operation.
In setting up the transaction, the first thing to do is to specify the strike price and the investment amount
In setting up the transaction you will need to specify the amount of money you wish to invest and the strike price. The latter works as a threshold that the price will have to reach to allow you to win. When the strike price is not reached, the investment amount is lost. While the expiry time and the allocation of the amount are rather simple, the concept of the strike price may seem a bit complicated. We'll talk about it later.
Set up an operation
The setting of the operation is undoubtedly the most important part of the whole process. At this time you can select the exercise price and the amount of money you want to invest. Do not forget the principles of risk management. The investment amount should be calculated as a percentage of your total funds and should not exceed 5% of the account balance.
Analyze the trend
There are three main ways to analyze price action: you can do a visual, technical and fundamental analysis. Visual analysis is performed automatically as soon as you direct your attention to the price chart. And technical and fundamental analysis? Which one is better to apply to trading with FX options? The technical analysis is based on the premise that all the information necessary to complete a successful operation can already be found on the graph. This type of analysis does not take into account the broader picture. On the contrary, fundamental analysis takes into consideration the most important political and economic events and the most relevant announcements. Because you're trading on hourly time intervals, both can be used effectively.
When the transaction parameters are set and the most likely trend direction has been determined, you are ready to open the transaction. Click on "High" if you believe the price will increase, or press "Low" if you believe the opposite will happen. Do not forget to adjust the exercise price, since it is often the element that determines the success or failure of the operation.
Potential profit and loss depend on the strike price
The operation will be closed automatically as soon as it reaches its expiry time. If at the time of expiry the price is above the strike price, this will result in a win if you clicked "High" and a loss if you clicked "Low". Vice versa, in order to win by selecting "Low", the price at maturity must be below the exercise price you specify, otherwise the amount invested will be lost. Do not forget that the options themselves have a price that must be taken into account when calculating the profitability of an operation.
Overall, FX options are traded according to the same rules and principles as ordinary options. Follow the trend, cut losses and manage your risks. And above all, learn. Be sure to constantly improve your trading skills and always learn something new. Now that you know this new tool, you're ready to put it to the test.
This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.
GENERAL INFORMATION ON RISKS:
CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.
Source: IQOption blog 2018-10-19 12:34:04