What are
Your Options Regarding Forex Options Brokers?
Forex option brokers can generally be divided into two separate
categories: forex brokers who offer online forex option trading platforms and
forex brokers who only broker forex option trading via telephone trades placed
through a dealing/brokerage desk. A few forex option brokers offer both online
forex option trading as well a dealing/brokerage desk for investors who prefer
to place orders through a live forex option broker.
The trading account minimums required by different forex option
brokers vary from a few thousand dollars to over fifty thousand dollars. Also,
forex option brokers may require investors to trade forex options contracts
having minimum notional values (contract sizes) up to $500,000. Last, but not
least, certain types of forex option contracts can be entered into and exited
at any time while other types of forex option contracts lock you in until
expiration or settlement. Depending on the type of forex option contract you
enter into, you might get stuck the wrong way with an option contract that you
can not trade out of. Before trading, investors should inquire with their forex
option brokers about initial trading account minimums, required contract size
minimums and contract liquidity.
There are a number of different forex option trading products
offered to investors by forex option brokers. We believe it is extremely
important for investors to understand the distinctly different risk
characteristics of each of the forex option trading products mentioned below
that are offered by firms that broker forex options.
Plain Vanilla Forex Options Broker - Plain vanilla options
generally refer to standard put and call option contracts traded through an
exchange (however, in the case of forex option trading, plain vanilla options
would refer to the standard, generic option contracts that are traded through
an over-the-counter (OTC) forex dealer or clearinghouse). In simplest terms,
vanilla forex options would be defined as the buying or selling of a standard
forex call option contract or forex put option contract.
There are only a few forex option broker/dealers who offer plain
vanilla forex options online with real-time streaming quotes 24 hours a day.
Most forex option brokers and banks only broker forex options via telephone.
Vanilla forex options for major currencies have good liquidity and you can
easily enter the market long or short, or exit the market any time day or
night.
Vanilla forex option contracts can be used in combination with
each other and/or with spot forex contracts to form a basic strategy such as
writing a covered call, or much more complex forex trading strategies such as
butterflies, strangles, ratio spreads, synthetics, etc. Also, plain vanilla
options are often the basis of forex option trading strategies known as exotic
options.
Exotic Forex Options Broker - First, it is important to note
that there a couple of different forex definitions for "exotic" and
we don't want anyone getting confused. The first definition of a forex
"exotic" refers to any individual currency that is less broadly
traded than the major currencies. The second forex definition for
"exotic" is the one we refer to on this website - a forex option
contract (trading strategy) that is a derivative of a standard vanilla forex
option contract.
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