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Currency Options
 
One of the ways to hedge a FOREX transaction is with what is called a currency option. A currency option gives the holder the right to buy or sell a specified currency during a specific time period, but the holder is not obligated to buy or sell.
Call options and Put options are the two types of currency options. With a call option the holder has the right to buy currency. A Put option gives the holder the right to sell.
The worth of a call or put option at time of expiration is equal to the value realized by the holder in exercising the option. If the holder gains nothing, the option is worthless. The intrinsic value of the option is the value when the option is bought or sold.
Strike priced is what drives the intrinsic value of an option. A call option has an intrinsic value if the current price is above the strike price while a put option has intrinsic value if the spot price is below the strike price.
The spot and time value are taken into account when figuring out an option price. Time value is measured using the expected market conditions and the difference in interest rate between the two currencies. The price charged for options must be kept low enough to attract buyers and high enough to attract writers.
FOREX markets use currency options to minimize risks against moves in the market. When you purchase an option any losses are limited to the cost of the option. There are many types of options available to be used as hedges. To ward against loss from fluctuations in foreign exchange markets some companies use these.
A Digital option pays at expiration of the option. Traders generally use this option after much consideration regarding market movement and payoff amount.
About the Author
This article courtesy of http://www.forex-shopper.com



Currency Trading News


Knight's Electronic Execution Services Knight Direct and Hotspot FX Win ...
MarketWatch (press release)
8, 2012 /PRNewswire via COMTEX/ -- Knight Capital Group, Inc. (nyse euronext:KCG) today announced that Knight Direct was named Best Agency Broker - Algorithms and Hotspot FX was named Best FX Trading Platform by Wall Street Letter in its inaugural ...

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FXstreet.com

Currency trading in London surges
Financial Times
By Alice Ross Foreign exchange trading in London, the world's currency hub, surged as worries over the eurozone crisis grew last autumn, figures released on Monday showed. Average daily turnover for trade in global currencies in the UK was just less ...
Currency Trade at Record $977 Billion in North AmericaBusinessWeek
Global forex volumes dip, up in N.AmericaReuters
Forex Trading Volume Drops for First Time Since 2009Wall Street Journal

all 15 news articles »

Globe and Mail

UBS Gaining Market Share In Currency Trading
Fox Business
ZURICH -- As it is moving towards conducting more flow business on behalf of clients, UBS AG (UBS) is gaining market share in currency trading, Tom Naratil, chief financial officer at Switzerland's largest bank, said Tuesday.
UBS warns of poor Q1 as investment bank strugglesReuters

all 294 news articles »

'Draconian' Currency Ban Chokes Off Trading: Argentina Credit
San Francisco Chronicle
Foreign-exchange volume in the Mercado Abierto Electronico, the country's biggest electronic market, sank 47 percent last month from a year earlier to $3.8 billion, the least since October 2006. Restrictions on foreign-currency purchases imposed by ...

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AFP

EUR/USD: Trading The European Central Bank Interest Rate Decision
TheStreet.com
The euro held below intraday resistance at the 1.3285 level in North American trade with the single currency continuing to straddle the 76.4% Fibonacci extension taken from the January 15th and 25th troughs at 1.3260. A break below interim soft support ...
Fed to Devalue Dollar by 33%?Wall Street Pit

all 332 news articles »