How to Trade Forex and Gold Options

Submitted by Share Trading on 26 August, 2017 - 10:26

In this video, we will talk about options trading, why people trade options and what is options trading.

Why Do People Trade Options?

You chose to trade options for different reasons:

  • You trade options to speculate on currency movements
  • You trade options if you have a spot trade that you want to hedge.
  • You trade options if like an exporter or exporter you aim to secure a future income.

What are Options?

The world's financial markets are more exciting now than ever, you can trade options online just like forex, stocks and commodities and the beauty of trading on the easy forex platform is its simplicity. When you buy an option, you buy a future guarantee for a fixed price. A huge advantage of trading options is that you don't get charged rolling fees each day your deal is open and when the time comes, you choose whether to take it or not

Opening an option deal is basically buying or selling a currency pair at a set expiry point in the future and once you buy the option, you've bought the right to cash it in at any time up to the expiration date. Let’s see how options work in this example.

Gold and Forex Options Trading example

John has a small Jewelry work shop, he buys gold to make jewelry and sell it. John buy 100oz. of gold from his supplier every 3 months. He is aware that gold prices may change, and he wants to get fixed prices for his future purchases, to do so, he signs a contract with his supplier, Mike. Mike sells Gold to John at a fixed price for a small fee (The Premium) on the delivery day John has two alternatives, John can either buys the gold from his supplier or buy directly from the market.

If the market price is lower than what they agreed on, then John can cancel his contract with Mike and buy from the market, so Mike only receives his Premium. If the market is higher than what they agreed, John will buy from his supplier mike at the pre-agreed price which is lower than what the current market price, that’s the principle of Options.

Here is an example of how John trades Gold with the Easy Forex Platform. John trades Gold online with easy forex, Gold options allow him to minimize his risk by guaranteeing a fixed price at a future date he chooses. If John believes Gold prices are going to rise, he will choose to buy an option on gold. He selects the price which he believes that gold will rise above, the date up to which he wants the option to last and the amount of gold he wants to buy. Buying a gold option means that John will pay a small premium, If Gold rises above the price level he sets, John can close his position meaning that he will sell the option and profit from the difference.

If the gold price moves below his selected level, he will only loose the small premium he paid upfront. John invested in Gold knowing that his maximum cost upfront. You only need a small upfront investment to trade options.

Find out more and Trade Options today!

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