What is the Role of an Option Writer?

Trading forex options can be a wise move for a trader since it has many attractive features. Firstly, it is flexible to use since the options buyer dictate the precise time and price of the underlying currency pair indicated in an options contract. He may exercise his option to go through with the purchase come expiration date of just let the option expire without value. Only the premium will be the option buyer’s loss. Another good thing about currency options is that it exposes the trader to a more limited risk and requires only a small amount at the onset of the transaction. This amount is what is called the premium and serves as payment for the buyers right to the option.

Generally, to write, sell or grant an option is riskier than to buy or sell forex options. This is because the writer/seller of option may experience a loss of unlimited amount since it is his responsibility to provide for extra margin in his account to retain the position on the same level in case the market movement proves unsuccessful on his part. Another risk comes when the buyer decides to exercise his option after a break in currency movement and the seller has no choice but to settle in cash the option or give the interest. If the option is “covered” by another position, there may be lesser risk. If the option is on leverage, the seller gets an open forex position. If however the option is not at all covered, the loss on the part of the seller may be unlimited.

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