FX Options Explained: Your In-Depth Guide
Forex has traditionally required large balances and with the highly risky market, it was not attractive to many retail traders. Furthermore, without the proper starting capital you can quickly see your balance wiped away if the improper risk metrics are not used. With that, queue IQ Option and their product the Forex option. This product has given traders the ability to have access to the Forex markets with smaller trading accounts and achieves limited risk. Two of the main factors that keep retail traders away from the Forex markets.
How Do FX Options Work?
Forex options allow the trader to first predict if an asset is going higher or lower. From there, you choose the appropriate strike price in the direction you believe the market will trend. Once you made the trade, you will either have a profitable or unprofitable trade. The beauty is your profits and losses are predetermined at the time of the trade. Whereas with traditional Fore trading, if you don’t have a stop loss in place you can literally lose all of you balance and then some.
The benefit is you are able to access the markets without risking your whole account. You can trade the minimums or a large as you want, with both profits and losses being predefined. Remember though, the further in the money you are with the strike price, the less the payout will be.
How to Trade FX Options on IQ Option
First, this type of product is only available on 14 of the more popular Forex pairs. On top of that, the product is currently unavailable to European traders at the moment. Non-European traders can enjoy this product and in a short amount of time, it appears it will be available to all who can utilize the platform.
Trading an FX option is similar to that of a binary option, except the time intervals can be as little as sixty minutes. Also, you can earn unlimited profits according to the IQ Option website. Another benefit is you can begin utilizing this product for as little as one dollar.
How it works is you first decide how much you want to invest. From there, you can complete your market analysis and decide which direction the market is heading. Once you’ve determined direction, begin to think about how long you want your trade to last. Now that you’ve decided all that, it is now time to choose a strike. Keep in mind, the further in the money you are, the less the payout will be. However, should you chose an out of the money strike, your payout will be greater because the market needs to move in your direction to become profitable.
The chart will show you the percentage of profit you will receive per trade. Unlike a traditional binary option, the FX option allows you to find a strike that is not at what the market currently is.
If you look on the website, you may find that there is a digital option. This product appears to differ from the FX option in that the time interval is shorter and the profits are capped.
Using IQ Option and their FX option product is an effective way to gain exposure to the Forex markets. With limited risk with predefined losses and profits, you are able to trade without blowing up your account on one trade should you choose. Risk and capital requirements are one of the main reasons people tend to stay away from Forex but with IQ Option, you can begin making profits in the Forex market. Be sure to open a demo account and see how you fair. This platform may not be for everyone and testing on a demo ensures you are not wasting your hard earned capital.