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In foreign currency trading, options are a bit more complex and diverse than what you may have seen if you've dealt with equities options in the past.  There are many more ways these options can be designed and executed, so your choices for options trading in Forex are greater.  Here we will discuss the basics of what Forex options are and are not, and how you can use them to enhance your Forex trading.

The first type of option in forex is called a plain vanilla option. These are the very basic options consisting of either a call (the right to buy at a specified price) or a put (the right to sell at a specified price).  There are set parameters on the strike price and the expiry of the options.

Traders can use these options either one at a time, or several at once to create a strategy that meets their needs.  This type of option benefits from great liquidity in the currency markets.  Depending on the broker used, plain vanilla options can either be traded by phone or online, or in some cases either way.

Be careful, though.  These options will require a minimum account balance of at least a few thousand dollars, and possibly a minimum of as much as fifty thousand dollars just to get started.

Exotic options are a much more affordable way to enter the world of Forex options. These options are called exotic because they have varying rules that make them more detailed than vanilla options.

They can be such things as average price, no touch, one touch, double no touch, double one touch, and a variety of other formats. Some of the options styles available to you will depend on who your broker is.

Now, with exotic options, you can typically get started with as little as a hundred dollars, or perhaps even less.  They are typically based, at least in part, on vanilla options so they are a great way to get your feet wet with options trading.

Risk is a unique quality of options. Whereas trading the currencies themselves can essentially put your entire account balance at risk, options risk only what you paid in the purchase price, and no more.

However, deep-out-of-the-money options rarely pay out, and so you are increasing your loss risk by increasing the potential payout.

Deep-out-of-the-money refers to extremely high percentage returns on the capital risked for the option purchase.

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