Why The Forex Is Interesting To Study

Forex traders are normally associated with aggressive speculation most traders say

. With this it is all about the ability of the forex retail trader to trade options on the currency pairs. The advantage of using OTC options is that it can give you more strategies and tactics.

Most traders will be buying calls or puts on the underlying spot currency pair as this is the most common move. However with this tactic your pay will be limited. A good remedy is to use options on spot forex pairs to generate more income. There are a lot of risks in the forex but you can try to avoid them. Here are the steps in formulating an income strategy for a forex account using options. It is best to first have income goals. Also, it is best that you have an achievable dollar goal. It is sometimes similar to an object of $1,000 per month on a $5,000 account is a different level of risk than setting a goal of $500 per month.

Remember that you also need to manage risk and trade. Always have a process to lessen risks. By using Stop and limit orders you are containing your risk. It is also good if you do the buying and selling of spot cash to offset price moves as this is one risk control. If you plan to use this tactic just be sure to take measures to control the downside.

Technical analysis is also something you want to use 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. One should take into account that the trade needs to be an outcome of technical analysis. Of particular importance in evaluating strike levels are Fibonacci levels, point and figure breakout zones, as well as the valuations on the delta, theta and other key terms related to options trading.

The next step is to scan option pricing tables for puts and calls that can help you achieve those goals. Searching online can find you many 24 hour OTC currency option pricing tables. One good example is when a trader was 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.

It is noticeable that in this case the margin ratio is 80% which is high. Doing this trade with a $5,000 account requires the use of buy stops.

Your objective is that when the February options expire, the cash price of EURUSD will be between 98.50 and 110.05. Just like a 400 pip wide trading range this is one example of the income trading you can have.

by: Frank Harrison

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