What is meant by currency option transactions?

A currency option transaction is an option that can be used to hedge currency exchange rate fluctuations. In this forex business model, a trader acquires the right to buy or sell a foreign currency on a fixed date at a defined price.

However, this right does not create an obligation, so the purchase or sale does not have to take place if the price of the given currency does not meet the trader’s expectations. In order to acquire the right to buy or sell, the trader must pay a premium to the seller after the transaction is completed. This type of trading is relatively risk-free, the buyer can lose only the option premium but not the equity spent. The seller, on the other hand, bears the risk of total loss, because he can lose both the derivative and his invested capital. This form of currency trading is basically divided into two different areas. If the buyer acquires the right to buy, this is called a call option. If, on the other hand, he acquires the right to sell, this is called a put option. Moreover, the right to sell or buy does not correspond to an obligation that the corresponding deal actually takes place. The buyer can cancel the transaction at any time or determine a new time for the trade.

At which capital volume is trading worthwhile?

Basically, it can be said that trading on the Forex market is possible for everyone. Both banks and private individuals can set their trades here and make business arrangements. The entry is already possible with relatively little equity capital.

Already a few euros are enough to make a trade. This is made possible by the leverage effect, because with this instrument is usually more capital available than is actually on their own trader account. Therefore, private individuals can also establish themselves on this market. However, a corresponding trading capital should be in the range of 500 euros up to 1000 euros, so that correspondingly high returns are possible. Although trading can also be done with less capital, but in such a case, the leverage should be handled very carefully.

The higher the leverage, the faster you can lose the invested capital. Thus, in many cases it is more worthwhile to finance the trade from your own pocket, provided that the capital is sufficient for this. Nevertheless, profits can also be made in the lower segment, starting at a sum of 100 euros. Here, however, a corresponding strategy is required so that such an attempt can really be crowned with success.