Forex Trading Strategy of Combining Spot and Option Transactions

Forex traders across the globe follow a number of different trading strategies to profit from the market. The combining of spot forex and forex options is one such strategy which aims at reducing downside risk of capital loss and for maximizing a profiting opportunity. There is also an alternative strategy available where forex futures are used instead of options.

In the forex spot and options combination strategy, the trader plans to enter a forex trade with a relatively long-term perspective. But daily price swings or high volatility in price may cause premature closing of his position because of margin call on leverage. So in order to reduce this downside risk of losing money and margin call, the trader use forex options with opposite effect. So if the trend breaks or margin call happens, the trader can recover most of the money from the option contract. And if spot trade is a successful one, then the only loss is the option premium.

The success with forex spot and options combination depends on traders’ ability to analyze the trends and to time market entry and exit. The strategy is also less expensive compared to the profit one can make from the transaction or to the loss one may suffer. The strategy of using futures instead of options is usually more expensive for retail traders.

This blog is written for Orient Financial Brokers, a leading online spot forex trading broker in UAE offering online forex trade on an advanced forex software platform.