A Comparison of Forex and Options

Also known as forex trading, FX trading is a financial market where a trader can trade national currencies to try and make a profit. In case a trader feels like one currency will become stronger compared to the other, he can develop a strategy which can affect a trade and with good research, a profit can be made.

Options trading permit you to purchase or sell options on large amounts of stock and futures which you feel will either go up or down in price over a given period. An in the case of forex trading, you can leverage your buying power to control more stock or futures. However, there are a number of differences between forex and options trading.

24-hour trading

A key advantage you have with forex trading is that you can trade 24 hours a day, unlike options trading. The forex market is open longer than any other, which enables you to make double-digit gains. The market also grants you unlimited time every week to assist you to make the trades. In case a major event takes place around the globe, forex trading enables you to take advantage of it. In this regard, you will not have to wait for the market to open in the morning like in the case of trading options.

Rapid trade execution

In forex trading, you receive instant trade executions. There are no delays like in the case of options or other markets. Additionally, your orders also get filled at the best possible price instead of guessing which price your order might be filled. Additionally, you will not have to ‘skip’ like it is the case with options. There is a lot more liquidity to assist you with ‘slippage’ than there is in options trading.

Liquidity

Forex trading is more liquid than any other market. The average daily volume in the forex market is well over two trillion. As a result, there is no comparison. The liquidity in the forex market surpasses that in the options market, meaning that when it comes to time to trade, forex trades are filled much easier than options trade. This translates into more profit potential.

No commissions

Forex trading is devoid of any commissions because it is an inter-bank market which connects buyers with sellers immediately. Unlike other markets, there is no middleman brokerage fees. There is a spread between the bid and ask price, and from this, forex trading firms can make some profits. This means that when trading forex, you will save money unlike when trading options where there are commissions since you will be working with a brokerage firm.

Guaranteed limited risk

Forex traders must have position limits, with the risks being limited. This is because the online capabilities of the forex trading system automatically initiate a margin call when the amount is more than the value of the account in dollars. This ensures that the forex trader does not lose much in case the position goes the other way.

It is also a good safety feature which is not always available in other fiscal markets. Another difference between forex and options trading is that in options, there is only a certain period to trade before the options expire.

Greater leverage

Online forex trading gives you a lot more leverage than trading options. However, with options, you can manage put and call options which can greatly increase your leverage. Leverage is vital when you know how a currency is going to perform. A trader can get 200:1 or greater in forex trades compared to options trading, which is typically less. By and large, with forex, there can be significantly more potential to make more profits if you make the right moves.

Conclusion

When making comparisons between forex and options trading, consider your preferred trading style as well as the types of risk you are willing to take. Forex trading grants you the opportunity to make more profits if you can develop a good system and stick to your trading limits.

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