Forex option trading is often used by large financial institutions for their hedging strategy implementation, as well as it is used by a large number of day traders as a speculative instrument. Forex options are a specific type of a trading instrument, which has its upsides and downsides. One of the special features of Forex option trading is that it’s extremely liquid. Forex option buyer is called a holder, while Forex option seller is called the granter.

Forex options grant the owner the right (not obligation) to exchange a particular amount of one currency into another currency on a particular date and at a pre-agreed rate. Forex option trading is known for incurring only a limited liability. The buyer only has one obligation - to pay a premium to the seller prior to the purchasing of the foreign currency option. The seller can either buy the contract back before it expires, or to hold the contract until its expiration.

When you buy a Forex option, you are opting for a fixed price…