The Foreign Exchange market is the largest financial trading market in the world. The multi-trillion dollar a day market creates opportunities for trading in spot, forward and forex option trading. The forex option market is a liquid market that is used by both large and small speculators to generate returns. Forex options are traded as vanilla or standard options, as well as, binary or digital options.

Forex Options or Foreign Exchange Options are a derivative contract between two parties. The purchasers of the option, has the right but not the obligation to purchase a currency pair at a specific price, at a specific time. The seller of the option has the obligation to sell the currency pair to the buyer if the buyer chooses to exercise the option contract. The price that the buyer and seller of the option contract will exchange the currency pair is called the strike price. To have the right to purchase this contract, the buyer of the option pays the seller a premium.

For example, a buyer and a seller agree to enter into a USD/JPY $95 Call Option that expires in 2 days. The strike price $95 is the price that the buyer and seller will exchange USD/JPY. The buyer pays the seller $.005 to enter this contract. If the price of USD/JPY is above $95, then the buyer will exercise the Forex Option. In this case, the seller will be obligated to sell USD/JPY at $95 to the buyer of the Option. If the price of USD/JPY is below $95, then the buyer of the Forex Option will not exercise the contract. The expiration date in this example is 2 days, when the option will cease to exist. Prior to the expiration date/time, the buyer of the option will have to determine if he/she will exercise the option. Forex Options are traded on exchanges like the Chicago Mercantile Exchange (CME), as well as, over the counter (OTC). Forex Options are traded in all time zones, 24 hours a day, 6 days a week. There is a short period of time between Friday evening in the US and Monday morning in Asia when the market is not active. Forex Options are very liquid and provide a very active market to trade options.

Binary Forex options, which are also digital options, are an extractive alternative to trading standard options. Recently, some new online trading companies have created a trading platform to allow the individual investor to trade Binary forex options. These forex options are directional trades on the currency market but the payout is fixed. The payout can best be described as all or nothing where the investor receives a large payout if they are correct in determining the direction of the market and a 10% return of their initial investment if the trade is unsuccessful. Binary forex options do not require the investor to determine if they want to exercise their option, the payout is purely based on the criteria of whether or not the underlying Forex market is above or below the pre-agreed specified level.

You can see an overview of currency pairs that you can trade using binary options in the table below :

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