What forex trading is, most traders say is aggressive speculation. Forex then 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.
Here you can see an active trader buying calls or puts on the underlying spot currency pair. When you do this though, you will only get a minimal payment. There is however income in options on spot forex pairs as well. All kinds of trading will have risks but there are ways to lessen them. Here be sure to understand the steps in formulating an income strategy for a forex account using options. Be sure to have some income goals. It will always help that you have an achievable dollar goal. Most people will want to set a $1,000 per month on a $5,000 account which 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. It is always best to have a process to minimize risk. By using Stop and limit orders you are containing your risk. At the same time you can use the buying and selling of spot cash to offset price moves as a risk control tool. Most people would advice that you take measures to control the downside of this tactic.
It is best that you employ some technical analysis. One thing about the market is that you need to understand how the strike prices relate to overall key indicators, trends, and support and resistance levels. New traders need to keep in mind that the trade should be an outcome of technical analysis. Traders also need to remember these evaluating levels like 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 it is best to scan option pricing tables for puts and calls that can help you achieve those goals. Use the internet as there a plenty of 24 hour OTC currency option pricing tables. In an example, in looking to generate income using EUR USD options, they 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.
The margin ratio is 80% which is high. If you have a $5,000 account you might want to use buy stops.
Your objective is that when the February options expire, the cash price of EURUSD will be between 98.50 and 110.05. A good example is using a 400 pip wide trading range for this income trading.