As currency markets become more and more volatile small time traders, defined as those individuals with portfolios under $100,000 in value, may find
their choices limited in scope for protecting the position undertaken.
For example let us just reflect upon a single currency pair over the last 3 weeks if you could study the price charts carefully for EUR/ USD. The EUR/USD was constantly on the retreat until about the 1st week of March. Constantly being harassed, constantly short to the point that the market today for EUR/ USD is 60% net shorts, The EUR/USD has long been the unwanted child of the currency markets for the last 9 months at least. On the retreat fighting a fatiguing rear guard action and then all of a sudden the USD stops, stutters and lurches back unable to push on any more. inclusive either way the EUR/ USD currently trades sideways with the immediate threat of short covering and bounce for the EUR. for those traders short the market and without a hedge in the form of call options the bounce could prove detrimental if the offloading of shorts becomes a fast decisive moment.
Foremost in any trading arsenal is the principle of hedging with options and no more evident can this be seen that in the performance of the EUR/ USD. given the sensitivity to economic releases and increasing perplexity at the comments of the US Fed, price reactions have hastened volatility so much so that in a single day a trader can ttake a position and get whipsawed out of the market.
The use of options mitigates a position from being over-run far beyond the stop loss order.
Example -
Buy 1 long EUR/USD at 109.00 + long 1 put strike 108.50
But 1 short EUR/USD at 109.00 + long 1 call strike 109.50
Before the small trader had recourse to currency futures options on exchanges. But now increasingly spot fx platform providers are incorporating options trading usually taking up the counter-party position themselves in an OTC product creation to provide traders with recourse to hedging.
For further study of options trading to hedge your currency positions please study the following platform -
Academy videos and books -
Never enter into any trading plan without careful preparation of risk management assessment.In volatile markets having a plan B is completely essential for a successful trading career.
Pieter Bergli - DeLoren Trust Holdings
A non-profit commitment to provide education on the properties of currency markets
Forex market commentaries and media reports for free
Disclaimer - U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers
Pieter Bergli - DeLoren Trust Holdings
A non-profit commitment to provide education on the properties of currency markets
Forex market commentaries and media reports for free
Disclaimer - U.S. Government Required Disclaimer - Commodity Futures Trading Commission
Futures and Options trading involves risks of losses. No representation is being made that any reader and account will or is likely to achieve profits or losses similar to those that are being discussed on this blog http://forexeducationperspective.blogspot.com/. The past performance of any trading system or methodology discussed is not necessarily indicative of future results.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
All trades, patterns, charts, systems, etc., discussed in this blog http://forexeducationperspective.blogspot.com/ are for educative and illustrative purposes only and not to be construed as specific advisory recommendations for actual trades. Disclaimer - http://forexeducationperspective.blogspot.com/ bears no responsibility for the trading actions of its readers
