fx options super special

Both spot fx (cash or futures) and currency options (OTC or future options) involve the trading of currency pairs.

Spot fx price is determined at the point of trade while in case of options, the price is determined for a future date by a contract. Like spot fx, the contract, however, can be settled any time before the expiry of the contract.

For both instruments, forecasting or price change is involved. Since two currency pairs are involved, a profit can be made in both directions whether there is an upside or downside, depending on which currency pairs you have bet on.

Spot fx is a contract between a trader and a market marker while options contract is an agreement between the trader and a regulated exchange.

A Spot FX broker can set up the operations with a small amount of investment as an Introducing Broker, or so-called white label operator or even as an independent broker. Spot Fx is conducted over the counter (OTC) - also called a dark pool - liquidity being provided by the market makers. It is not traded on any exchange and the brokers can open an account for a trader by accepting even $100 margin deposit.

Fx futures or futures options are traded on regulated exchanges like Chicago Mercantile Exchange (CME) and have fixed minimum value contracts.

During the last 15 years and so, free availability of online trading platform for real and paper trading, Metatrader 3 in 2002, followed by Metatrader 4 in 2005, and now Metatrader 5 as well, has spawned a huge industry consisting of Introducing Brokers, educators, signal providers, programmers of chart indicators and automated trading bots, copy trades sellers and trade media publishers.

Only Metatrader 5 is recognised as fit platform for trading on a few regulated exchanges and only a handful of futures brokers have started using them in last couple of years.

A few - to be specific - three to four recognised market-makers (as against more than 3,000 brokers of spot fx trading) offer OTC currency options to retail traders. OTC currency options market is tiny and you would hardly find any worthwhile information on fx options trading for retailers on the web.

Vanilla options vs binary options

Unfortunately, in the recent past, fraudsters had hijacked search engines and have injected them with Adware and a Google search substitutes "options" term with "binary options", an unregulated product that has put a number of investors all over the world to huge losses. In almost all regulated places, binary options have now been banned.

Equity/stock options are hugely popular among the retail investors. The binary options operators capitalized on it. Fraudsters floated binary options scams, causing the confusion between the exchange-regulated vanilla options and the binary options.

Because of the popularity of binary options, OTC options providers have changed their trading and have made the process of trading quite user-friendly. But their costs are at least 4 times higher than those paid at recognised exchanges like Chicago Mercantile Exchange.