What do you mean by Forex futures?
Forex futures are the futures contracts that are standardized to buy or sell currency at a particular specified contract size, date, and time. These contracts are actually traded in futures exchanges all around the globe. Future contracts on Invcenter are not customizable and are traded publicly. There are intermediary Cleaning houses that guarantee these contacts against loss of credits.
What do you mean by Forex options?
The derivatives that are based on underlying pairs of currency are called the Forex option and the trade of forex options involves a plethora of strategies in the forex markets. A trader usually uses a strategy based on the type of option they are choosing, the broker, and also on the platform on which it is being offered. There are two varieties of the Forex option: the Vanilla Option and the Spot Option. Trading of Forex options can be done without any precondition of delivering a physical asset.
Futures in forex Trading
There are terms like Future Margins in this context. The cleaning houses of the future actually require the deposit from the participants which they term as margin. Margin is the minimum money that is being deposited by the participants in order to initialize the process and meet the initial requirements to continue it. It is not a loan.
Forex futures are being traded in the future exchanges and the most known centers around the world are Chicago Mercantile Exchange (CME) group. CME bears the largest number of future contracts that are really worthwhile.
We mostly use Forex futures for Hedging and Speculating activity. Let’s dive into the topics and see what are they:
- Hedging is the process of taking an opposite position in order to balance the losses and gains to all the assets that are underlying. The Hedgers usually take the position opposite to the position occupied by the investor which helps reduce the volatility of price changes.
- Speculation as the name suggests is the game of guessing the valuation and using the expertise to guess according to the speculations from the market’s progress, They are extremely vulnerable choices and they are very risky.
Options in Forex Trade
Trading of the options in the Forex market is a bit different from the other markets as the trading is done without the involvement of any physical assets. Traders have the discretion to choose the expiry date and also the prices. They are not contract bound like the forex future. In the case of a downside, the Forex option traders will only lose the amount they invested as a premium to buy the options. But there are a plethora of advantages. There are two different types of Forex Option trading:
- The traditional Vanilla option of trading or the call and put option is one of the methods of trading options. It has two styles: European style options and American style options. The vanilla option allows the traders to buy or sell a specific amount at a particular time and price at their will. The buyer has the discretion to specify all the points to the seller to which the seller will respond with a quotation.
- Another method is Single Payment option trading (SPOT) is more flexible than traditional vanilla trading. This is an all-or-nothing strategy. They are also called a binary or digital options. The buyer offers a situation of their prediction. They in turn will receive premium quotations based on the probability of the event taking place. If it occurs then the buyer gets the profit else he loses the premium.
Future is more bound with contracts and obligations than options in Forex trading. Options are having a risk of losing the premium under adverse conditions. The size of the underlying market is bigger for the Forex futures rather than the Forex options. If you want to bind yourself into obligations then Future Forex is your way but if you want a market without any such contracts then go for the options. The Forex market has been an ever-growing market and you definitely have the opportunity to shine out in this field.