Forex option trading seems easy to execute, however it is similar to other trading in different markets. You will have bigger chance to succeed when you have a good strategy. One of the common forex option trading systems is straddle strategy which is a part of non-directional or neutral option trading strategies. Take your time to get acquainted with this strategy, study and practice it until you have full understanding on it then you will be skillful deploying this forex option trading system.
Straddle is an option trading system which allows traders to hold a position in both put option and call option with the same strike price and expiration date. It means traders have a right to buy and sell a certain currency pair at the exact same exchange rate and for the same time period. Traders usually use this system when they have no clear view on the future direction of a currency pair within a certain time period. However, they are sure that the currency pair will move significantly.
When a currency pair eventually skyrockets, traders can exercise their call options and ignore their put options; and vice versa. Thus, when a currency pair eventually trades sideways until expiration date, it will be disastrous for the traders who implement this forex option trading system. The reason is both call option and put option will not cover the premium costs they have to pay for. Therefore, when you have a plan to deploy this system, make sure you will see a significant price movement regardless its direction.
There are two types of straddle:
Long Straddle: As the name implies, long straddle is simply a strategy in forex option trading system whereby a trader will go long (purchase) a long call option and a long put option for the same currency pair at the same strike price and expiration date.
Short Straddle: An options system performed by holding a short position in both a call option and a put option at the same strike price and expiration date. The goal of short straddle is gaining maximum profit from the amount of premium gathered by writing the options. The short straddle is a risky forex option trading system. When a market goes north significantly, a trader can be forced to sell a currency at low price, as he or she wrote the straddle at low strike price, and also forced to buy it at higher price. This is a reason why only advanced traders who implement this forex option trading strategy.
Alberto Pau, (BSc, MSc Mathematics & Finance, London, UK) is a published author and leading risk management consultant in the foreign exchange and commodity markets. After spending 8 years as a market-maker for some of the world's largest investment banks and managing over $1 billion in assets, he helps traders at all levels make a full time income trading forex online.
Alberto spends most of the year travelling in South America, Asia and the UK, where is based.
To learn more about how he can help you too make a full time income trading forex, click here now or visit: http://vip.MyForexTradingSuccess.com
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