What is the Role of the Forex Option Buyer and Seller?

The buyer and the seller are two important people in the foreign currency option market. It is these two that trade currencies and making the industry move and grow. In the market moves in favor of the seller’s direction there is no need for the seller to post other funds than the initial margin requirement. Otherwise, the seller must post supplementary funds on his foreign currency account so that its balance will stay above the maintaining balance of the margin requirement.

Paying a premium to the seller is the buyer’s primary monetary obligation for the currency options purchased up front. The moment premium is received by the seller, the buyer’s obligation to the seller ends without any margin required until such time that the foreign currency options expire or is offset.

On the date of expiration, the call buyer can now implement his right to purchase the fundamental – underlying – spot position in the foreign currency trading at the FOCs strike price. At the same time the put holder can also exercise his right to trade or sell at foreign currency option strike price the underlying FCO spot position. In most cases, foreign currency options are offset in the trading market before expiration rather than exercised by the FCO buyer.

Foreign currency options also become worthless if the spot price is lower than the strike price of the call option and if the call option’s strike price is lower than the spot price; and once the foreign currency option expires, both the buyer and the seller has no further obligation to each other.

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