What are currency options?
In the finances, the currency options of a financial tool that give their owner the right, but not an obligation, to exchange money from one currency to another with an agreed exchange rate at a certain date. The intermediary is paid for this right, which may vary. Premium depends on the number of contracts purchased. The possibilities of currency are an excellent way for corporations and individuals to ensure that unexpected movements of exchange courses. The currency options are also called foreign exchange options. For example, if the investor believes that the US dollar will be more expensive in terms of European euro, he would buy the possibility of calling in an effort to profit from the increase in the relative value of the dollar. If, on the other hand, he thinks that the US dollar will become cheaper in terms of euro, it would be wise to buy an option that allowed him to benefit from reducing the exchange rate.
Most currency options in the world are traded for the counter (OTC). WITHMinds on OPC options, whether it is monetary possibilities or other types, do not deal with stock exchanges, but rather between two private parties. These markets as such are not subject to the same level of regulation as the stock exchanges. It is usual that at least one of the parties in the currency transaction is a large institution that is well capitalized.
Avoid use of exchange, buyers and monetary sellers can adapt them to their exact needs. This provides a significant advantage to those who want to ensure risk in these markets. Lack of external regulation does not necessarily mean that there are more risks in the transaction, because most parties that buy and sell options must have open credit lines and agree on the procedures for clearing and settlement of transactions.
The market in monetary options has a resolution of options with the most volume and liquidity of all. American style options differ slightly from the European style options because the US options can be appliedThe day until the date when the contract expires, while European options can only be performed on one particular day. When trading with these options, it is necessary to keep in mind what type of option trading and which will give it the biggest advantage.