Forex Spot Options

Introduced very recently, spot options are a very effective tool to trade foreign exchange over the counter or through the exchange. These have become very popular amongst the traders and brokers owing to the return on investment that they provide to the investor in a very short period of time. Though spot options are riskier than their conventional counterparts, but considering the amount of gain that they offer, the risk becomes very small.

Forex spot options are short-term investment instruments where an investor has the choice of setting the conditions regarding expiration of the instrument and payoff in case the conditions are met at the time of expiration. After the trader sets his conditions, the broker makes an analysis of probability and thereafter sets his premium. Upon the agreement of both the parties the option is bought and comes into force.

There are several types of forex spot options and a trader is free to choose one as per his liking or trading style. The most popular types of spot options in forex market are as below.

One Touch

This type of spot option is purchased by forex traders when they believe that the currency pair will reach a certain target. In this option the forex trader sets his target price and expiration date and if his guess comes true he is paid or else he loses the option premium.

No Touch

This type of spot option is usually purchased by traders when they feel that the market will remain flat and there will be little movement in the currency prices. In this option the trader sets the price target that he believes that the currency pair will not be able to touch in a specified period of time.

 Double One Touch Spot Option

This type of spot option is purchased by forex traders when there is high volatility in the market but the direction of movement is not clear. In this option the trader sets two target prices, one lower than the prevailing spot price and one higher than the prevailing. In case the currency pair touches either of the price range, the trader gets the payout.

Double No Touch

This type of spot options are generally bought by traders when the markets trade within a certain range and there is very limited volatility. These are just opposite of double one touch options and the price targets are set in such a manner that the currency pair does not touch the set price within a specified period of time.

These spot options provide distinct advantages to the traders in the form of increased capital to play by providing the leverage in investment. While in spot trades a trader needs to invest full amount of money required in the transaction, use of spot options limit the use of capital to merely 15-20% of the required amount. Since these spot options are designed to expire in a very short period of time, the trader is able to earn more in a very short period of time. Also spot options offer very high return on investment, more than any other tool of investment making it further more attractive to the traders.