What are currency options?
Currency option is a contract which grants the holder the right but no compulsion to purchase or trade legal tender at a particular exchange rate in a particular phase of time for which a premium amount is remunerated to the broker which differ with the number of currency purchased. Currency option is the most excellent way for any person or company to circumvent against unfavorable actions in exchange rates. Foreign currency is the basic asset in currency options and they are also known as forex options.
Currency options are basically of two types:
- Call Option: In Call Option the purchaser has a right to purchase the currency at a fixed price upon a future date.
- Put Option: A Put Option on the other hand makes available the purchaser the right to trade off the above currency.
Apart from the above two currency options there are also some other vital options which are as follows:
- Knock-Out Options: These are just like normal options but they quench or come to an end if the market reaches a determined level through the life of the option. The knockout part normally makes them cheaper compared to a common Call or Put Option.
- Knock-in Options: These options are just the opposite of knockout options. They come into existence only when the market reaches an assured determined level. During this point of time a Call or Put Option comes into existence and take all the standard characteristics.
Source: Forex Options Trading
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