Call and Put Options in Forex

In the last few years, the forex market has seen many steady increases in the number of trades that are actively placed in the binary options market.  This is important because it essentially shows that strategies being used to express positions in the forex market are constantly evolving.  For those that do not have a firm understanding of how binary options work, we will offer some advice here for ways to look at how forex can be traded through these instruments.  Essentially, call options act as the equivalent of the long position when using the binary options market.  In contrast, put options are to be viewed as the equivalent to short positions for those that are trading forex in the traditional fashion.

Call Options and Put Options

In the bullish scenario, binary options traders are generally looking to buy call options in the associated currency.  Key factors under this scenario often include things like rising inflation or GDP figures, a hawkish central bank or even an outright increase in the base interest rate associated with the currency.  In these cases, currency values tend to rise and gains can be captured when the value of the currency rises above the strike price before the contract expiration period.  In this way, forex traders can actually capture significant gains using binary options contracts.

In the bearish scenario, binary options traders are looking to buy out options in the associated currency.  Key factors under this scenario often include things like falling inflation or GDP figures, a dovish central bank or a decrease in the base interest rate associated with the currency.  In these cases, currency values tend to rise and gains can be captured when the value of the currency falls below the strike price before the contract expiration period.  It should be remembered that both the bullish and bearish position will require you to “buy” and options contract and so you are never actually selling anything as you would in a forex short position.

Recent market reports from Mocaz have shown trends in forex trading have already started to shift in some of these directions, so it does benefit traders to have an understanding of how alternative trading instruments can work.  Both call options and put options can be used to define large sections of the market in ways that cannot be conducted through traditional forex trading.  So all forex investors can benefit from opening a demo account that offers access to the market using live conditions under these circumstances.

 

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About the Author
Richard Cox is a university teacher in international trade and finance. Lessons in macroeconomics and price behavior in equity markets. Trade ideas are generally suggestive of time horizons of one to six months.

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