CHAPTER 3FOREX OPTIONS

WHAT ARE FOREX OPTIONS

Forex, or currency, options are financial derivatives where the underlying instrument is a currency pair. The buyer of such an option acquires the right to buy (call) or sell (put) a currency pair at a given price and specific expiration date, but does not have the obligation to do so. Inversely, the seller of a currency option will have the obligation to buy or sell the instrument when it is exercised.

Originally this type of trading was performed in over-the-counter (OTC) markets and reserved to institutional traders as well as large corporations, which used the options to reduce the risks by hedging the exposure they might have in a particular foreign currency. Today, thanks to electronic trading ...

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