Many traders consider forex trading synonymous with aggressive speculation. This is all about the ability of the forex retail trader to trade options on the currency pairs. Using OTC options provides a new level of strategies and tactics.
Many traders are normally buying calls or puts on the underlying spot currency pair. There are limited premiums for this strategy. Exploring the options on spot forex pairs you can get a chance to increase your income. Risks can be lessened in forex trading. Remember these tips in formulating an income strategy for a forex account using options. Set some income goals first. Also, it is best that you have an achievable dollar goal. Keep in mind that an objective of $1,000 per month on a $5,000 account is a different level of risk than setting a goal of $500 per month.
It is best that you always manage your trading and your risks. Making a process will help you lessen your risk. Risk can be avoided with Stop and limit orders. Another risk management tactic you can use is buying and selling spot cash to offset price moves can be applied. In using this strategy, it is mandatory to take measures to control the downside.
Learn how to use technical analysis. A trader who is new to the market should have an understanding how the strike prices relate to overall key indicators, trends, and support and resistance levels. It is best that the trade be an outcome of technical analysis. Another is the understanding of Fibonacci levels, point and figure breakout zones, as well as the valuations on the delta, theta and other key terms related to options trading.
After all the monetary planning you are now ready to scan option pricing tables for puts and calls that can help you achieve those goals. The internet has a lot of 24 hour OTC currency option pricing tables. In looking to generate income using EUR USD options, a trader chose a February 98.50 put and a February 110.05 call where the spot price at the time of the trade was at 104.69.
Even the margin ratio of 80% is high. It is best to use buy stops if you do this trade with a $5,000 account.
Once the February options expire, the cash price of EURUSD will be between 98.50 and 110.05 and this is what you want to get. In currency trading one can choose to use a 400 pip wide trading range.