All articles with unsourced statements Articles with unsourced statements from July Articles with unsourced statements from September Articles with unsourced statements from November Here, the trader is confident of the exchange rate's direction, but wants to play it a bit safer with a little less risk. To help you understand the risks involved we have put together a series of Key Information Documents KIDs highlighting the risks and rewards related to each product. Basic options strategies always start with plain vanilla options. Volatility is factored into the time value of the option.
Sophisticated options execution for vanillas, exotics and multi-leg structures
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Puts and calls on 40 FX vanilla options, plus six FX touch options. You can see our trading conditions for FX Options here. We have compiled a comprehensive product guide about FX vanilla options which you can download here. Furthermore, you can find additional information about FX vanilla options below:. In addition, our experts run a series of webinars to help you broaden your understanding of forex and FX options trading. Our expert strategists regularly post news, analysis and commentary to help you stay one step ahead of developments in the market and provide actionable trade ideas.
You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date Certain options markets operate on a margined basis, under which buyers do not pay the full premium on their option at the time they purchase it.
In this situation you may subsequently be called upon to pay margin on the option up to the level of your premium. If you fail to do so as required, your position may be closed or liquidated.
If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received. By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.
If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full detail of the applicable conditions and potential risk exposure. The Saxo Group spans the entire globe with a strong, unified network. Both our local sales and service organisations as well as our global online presence allow for us to give first-class service to clients in more than countries.
The value of your investments can go down as well as up. Losses can exceed deposits on margin products. Complex products, including CFDs and FX, come with a high risk of losing money rapidly due to leverage.
You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Trade responsibly All trading carries risk. Some of the more common option related terms are defined below:. The price of currency options are determined by its basic specifications of strike price, expiration date, style and whether it is a call or put on which currencies.
Option market makers estimate this key pricing factor and usually express it in percentage terms, buying options when volatility is low and selling options when volatility is high. When trading currency options, you first need to keep in mind that time really is money and that every day you own an option will probably cost you in terms of time decay. Furthermore, this time decay is larger and hence presents more of an issue with short dated options than with long dated options.
The triangle was also forming over several weeks, with a well defined internal wave structure that gives the trader considerable certainty that a breakout is imminent, although they are not sure in what direction it will occur. Currency options have enjoyed a growing reputation as helpful tools for hedgers to manage or insure against foreign exchange risk.
For example, a U. In terms of a simple currency hedging strategy using options, consider the situation of a mining goods exporter in Australia that has an anticipated, although not yet certain, shipment of mining products intended to be sent for further refinement to the United States where they will be sold for U.
Dollar put option in the amount of the anticipated value of that shipment for which they would then pay a premium in advance. Alternatively, to save on the cost of premium, the exporter could only buy an option out to when any uncertainty about the shipment and its destination was likely to be removed and its size was expected to become virtually assured.
Options pricing has several components. At the expiration date of the option, which is sometimes referred to as the maturity date, the strike price is compared to the then-current spot rate. Depending on the type of option and where the spot rate is trading, in relation to the strike, the option is exercised or expires worthless. If the option expires in the money, the currency option is cash settled.
If the option expires out of the money, it expires worthless. Let's say an investor is bullish on the euro and believes it will increase against the U. Consequently, the currency option is said to have expired in the money. The expiration date of a derivative is the last day that an options Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
Options on debt instruments provide an effective way for investors to manage interest rate exposure and benefit from price volatility, learn more today. Learn the top three risks and how they can affect you on either side of an options trade. Learning to understand the language of options chains will help you become a more effective options trader. Options and futures may sound similar, but they are very different.