Taking your first steps into the FX Derivatives business may seem daunting and you may find yourself asking, “What are FX Derivatives?” Simply put, a FX Derivatives is a contract where the trader decides if a particular asset will go up or down in value after a predetermined period of time – making a profit when they make the right decision.
Trading FX Derivatives can differ rather significantly as compared to many other types of market trading. As the name suggests, Derivative implies having to decide between two options. At a basic level, traders make the choice between ‘Up’ or ‘Down’, also commonly known as a Call or Put respectively.
Call and Put are the simplest options in FX Derivatives, making it the suitable for traders who are new to the world of FX Derivatives trading. The following is a more detailed look at these two options:
If you are selecting a Call FX Derivatives, you do so predicting that the currency pair will end up at a higher price than the strike price at the end of the trading period. If you have made the right call, you will stand to gain a profit.
For example, in this scenario:
If you select the Put or Down FX Derivatives, you predict that the chosen asset value will be lower than its strike price at the end of the chosen time frame. This option is the opposite of Call/Up.
In the same example above,
The beauty of the Call and Put FX Derivatives is its simplicity. All a trader has to do is concentrate on the market direction. No margin calculations, managing floating trades, spreads, stop losses or take profit levels like in forex – simply up or down.
This fixed-return option allows a trader to calculate their profit potential and risk easily, giving them the comfort of knowing the exact amount of money they can earn before they fully invest in it. Knowing this information makes it easier for them to perform proper money management techniques and control their trading portfolio. The same goes for the broker – more transparency gives the broker the freedom to safely manage funds without any headache.
Whether as an additional product or stand-alone one, FX Derivatives let brokers offer more products with an easy-to-market, accessible financial instrument. They can offer an extensive range of commodities, stocks and indices, so no matter what you prefer or where your knowledge in the market is, you can have your pick of financial assets to trade.
Low cost and fast returns with high profits make FX Derivatives an increasingly popular form of trading in the financial market. It has the possibility of yielding highreturns. Expiry times for FX Derivatives are much shorter as compared some traditional trading methods, shortening the time you wait before you can see any returns. This allows traders to make quick trades and maximize profits while minimally investing their time and capital.
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