I'm posting this thread which will hopefully become a source for Forex Options egies.
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I haven't used options in Forex to-date but would like to use then as a hedging tool to get a place position to reduce a possible loss instead of using stoploss orders. I can see that the advantage of hedging with Forex options instead of working with a stop would be that we can remain on the market despite the moves against our place position and still possess an infinite profit situation. The disadvantage is that we would need a good risk reward system which has a gain in the place position before we make a profit as we need to pay for the option premium.
Now for instance our trading systems gives us a sign that speculates that the exchange rate of the GBP/USD will decline during the next month. We market 1,000,000 GBP on margin in the spot price of 1.8000. If we want to protect this position we would normally decide on a stoploss the GBP climbs at maybe the daily ATR.
Now another way would be to protect our position by a infinite loss using an alternative. As a holder of the option we will maintain the potential for an infinite profit because our place position can remain open before the date of the option. If our place position stays and moves against us there will increase in value offsetting the place losses giving a entire loss scenario of the option premium to us. So this situation of a choice instead of a stop loss order will allow us to remain in the market more that wouldn't be possible using a stoploss order. We could find ourselves re-entering the market many days after rebounds, particularly in a market with higher volatility.
Please let us know if you use an alternative egy as part of your risk variable when trading Currency Market along with the egies which have been effective for you.