Differences between forex options and stock options
Foreign exchange options also known as a Forex Options or FX options. A FX option is a financial instrument derived from the value of the underlying asset. In the case of FX options the owner has the right but not the obligation to exchange a certain amount of money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.
The same principle as that which relates to stock options, which is defined as "the right to buy or sell a stock at a specified price within a stated period".
However if you have been a stock market trader or investor looking at diversifying into the forex currency market beware of the following matters;
Volatility The currency market has a tendency to move faster than most stocks in the share market. The forex market can swing backwards and forwards extremely fast when world events unfold and major economic reports are released.
Market forecasting It has also been suggested that due to the pairing of two currencies market forecasting may prove to be more of a challenge in the foreign exchange market than the stock market.
Leverage Forex offers a highly leveraged investment derivative compared to stocks. Risk level differs.
Trade duration Fx market operates 24 hours a day, thereby enabling currency options to be traded around the clock. Stock options can only be traded during business hours.
As the currency market and the stock market differ in relation to investors and traders financial needs, these factors need to be taken into account when investing in options.
Trading logic behind short term binary options
Video below shows a little insight into trading logic for options.
