Forex option brokers can commonly be divided into two separate categories: forex brokers who offer online forex option trading platforms and Forex brokers who only broker forex option trading via touchtone phone trades placed through a dealing/brokerage desk. A few forex option brokers offer both online forex option trading as well a dealing/brokerage desk for investors who prefer to place orders through a live forex option broker.
The trading account minimums required by uncommon forex option brokers vary from a few thousand dollars to over fifty thousand dollars. Also, forex option brokers may require investors to trade forex options contracts having nominal notional values (narrow sizes) up to $500,000. Last, but not least, fastidious types of forex option contracts can be entered into and exited at any time while other types of forex option contracts lock you in until end or settlement. Depending on the type of forex option narrow you enter into, you might get stuck the incorrect way with an option narrow that you can not trade out of. Before trading, investors should inquire with their forex option brokers about initial trading account minimums, required narrow size minimums and narrow liquidity.
There are a number of uncommon forex option trading harvest existing to investors by forex option brokers. We believe it is extremely vital for investors to know the clearly uncommon risk characteristics of each of the forex option trading harvest mentioned below that are existing by firms that broker forex options.
Plain Vanilla Forex Options Broker
Plain vanilla options commonly refer to ordinary place and call option contracts traded through an exchange (but, in the case of forex option trading, plain vanilla options would refer to the ordinary, generic option contracts that are traded through an over-the-counteract (OTC) forex dealer or clearinghouse). In simplest terms, vanilla forex options would be certain as the buying or selling of a ordinary forex call option narrow or forex place option narrow.There are only a few forex option broker/dealers who offer plain vanilla forex options online with real-time streaming quotes 24 hours a day. Most forex option brokers and banks only broker forex options via touchtone phone. Vanilla forex options for major currencies have excellent liquidity and you can easily enter the market long or small, or exit the market any time day or night.Vanilla forex option contracts can be used in combination with each other and/or with spot forex contracts to form a basic strategy such as writing a covered call, or much more complex forex trading strategies such as butterflies, strangles, ratio spreads, synthetics, etc. Also, plain vanilla options are often the basis of forex option trading strategies known as exotic options.
Exotic Forex Options Broker
First, it is vital to note that there a couple of uncommon forex definitions for “exotic” and we don’t want anyone getting confused. The first classification of a forex “exotic” refers to any party currency that is less broadly traded than the major currencies. The second forex classification for “exotic” is the one we refer to on this website – a forex option narrow (trading strategy) that is a derivative of a ordinary vanilla forex option narrow.To know what makes an exotic forex option “exotic,” you must first know what makes a forex option “non-vanilla.” Plain vanilla forex options have a definitive end structure, payout structure and payout amount. Exotic forex option contracts may have a change in one or all of the above features of a vanilla forex option. It is vital to note that exotic options, since they are often tailored to a specific’s shareholder’s needs by an exotic forex options broker, are commonly not very liquid, if at all.
Exotic forex options are commonly traded by money-making and institutional investors rather than retail forex traders, so we won’t spend too much time covering exotic forex options brokers. Examples of exotic forex options would include Asian options (average price options or “APO’s”), barrier options (payout depends on whether or not the underlying reaches a fastidious price level or not), baskets (payout depends on more than one currency or a “basket” of currencies), binary options (the payout is cash-or-nothing if underlying does not reach strike price), lookback options (payout is based on most or nominal price reached during life of the narrow), compound options (options on options with multiple strikes and exercise dates), spread options, chooser options, packages and so on. Exotic options can be tailored to a specific trader’s needs, therefore, exotic options narrow types change and evolve over time to suit those ever-changing needs.
Since exotic forex options contracts are ordinarily specifically tailored to an party shareholder, most of the exotic options business in transacted over the touchtone phone through forex option brokers. There are, but, a handful of forex option brokers who offer “if touched” forex options or “single payment” forex options contracts online whereby an shareholder can state an amount he or she is willing to risk in exchange for a specified payout amount if the underlying price reaches a fastidious strike price (price level).
These transactions existing by legitimate online forex brokers can be painstaking a type of “exotic” option. But, we have noticed that the premiums charged for these types of contracts can be higher than plain vanilla option contracts with akin strike prices and you can not sell out of the option spot once you have bought this type of option – you can only attempt to offset the spot with a separate risk management strategy. As a trade-off for getting to choose the dollar amount you want to risk and the payout you wish to hear, you pay a premium and sacrifice liquidity. We would encourage investors to compare premiums before investing in these kinds of options and also make sure the brokerage firm is reputable.
Again, it is honestly simple and liquid to enter into an exotic forex option narrow but it is vital to note that depending on the type of exotic option narrow, there may be small to no liquidity at all if you wanted to exit the spot.
Firms Donation Forex Option “Betting”
A number of new firms have popped up over the last year donation forex “betting.” Though some may be legitimate, a number of these firms are either off-shore entities or located in some other remote location. We commonly do not deliberate these to be forex brokerage firms. Many do not appear to be regulated by any government agency and we strongly suggest investors go due meticulousness before investing with any forex betting firms. Invest at your own risk with these firms.