Facilitating currency exchange transactions – changing one currency to another currency – for multinational business entities that need to continually trade currencies is the primary reason why the forex options market exists.
Why do these companies need to trade currencies? Companies trade currencies because it is a natural phenomenon in the operations of the business – payroll, supply purchase, payment for services rendered by contractors, foreign vendors, as well as for activities like merges and acquisition. However, these daily transactions only account for 20% of the total market volume. The other 80% of trading transactions are purely speculative dealings participated and put up by big financial bodies, multibillion dollar hedge fund, and concerned persons who would like to take an active part in the economic and political happenings of the day by expressing their opinions.
Due to the fact that currencies are constantly traded in pairs – like Euro/U.S. dollar – the trader will then fall short on the Euro but will grow long on the U.S. dollar. In other words, if we put it in simple terms, when you purchase a laptop worth $1,000 U.S. dollars, you will basically become short in $1,000 and long in laptop; conversely, the store where you bought the laptop will now be short of 1 laptop but long in $1000. The foreign exchange market operates in the same principle, only that nothing is actually and physically traded off or exchanged in the course of the transaction. However, all transactions are entered in computer entries, thus, the outcome are still real.
Timothy Stevens is a Forex Options Trader who owns http://www.NonDirectionTrading.com - He has helped hundreds of people on Trading Forex with Options.
He has recently developed a free e-course showing you a step by step process for starting your Forex Trading easier. To learn how to start Forex Trading with Options without wasting your time and losing more money, visit http://www.NonDirectionTrading.com/members/FreeReport.htm
