Like the forex spot market, the forex options market is considered an “interbank” market. Forex option trading has emerged as an alternative forex market forex trading currency overview vehicle for many traders and investors.
As an investment tool, forex option trading provides both large and small investors with greater flexibility when determining the appropriate forex trading and hedging strategies to implement. Most forex options trading is conducted via telephone as there are only a few forex brokers offering online forex option trading platforms. The amount the forex option buyer pays to the forex option seller for the forex option contract rights is called the forex option “premium. The Forex Option Buyer – The buyer, or holder, of a foreign currency option has the choice to either sell the foreign currency option contract prior to expiration, or he or she can choose to hold the foreign currency options contract until expiration and exercise his or her right to take a position in the underlying spot foreign currency. The only initial financial obligation of the foreign currency option buyer is to pay the premium to the seller up front when the foreign currency option is initially purchased. On the expiration date, the call buyer can exercise his or her right to buy the underlying foreign currency spot position at the foreign currency option’s strike price, and a put holder can exercise his or her right to sell the underlying foreign currency spot position at the foreign currency option’s strike price. Most foreign currency options are not exercised by the buyer, but instead are offset in the market before expiration.