Comparison of option types (6) – FX Options

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HOW TO TRADE FX OPTIONS WITH IQ OPTION – REVIEW AND WALKTHROUGH

Overview:

      13 forex pairs available + commodities and indices Uncapped profitability (for successful trades) Expiry time every 1 hour Choose between different strike prices Profit from rising or falling markets (in the case of winning trades) Enjoy IQ Option’s trading apps, technical indicators, and widgets

RETAIL EU TRADERS CAN NOW TRADE FX OPTIONS, WHICH IS A GREAT ALTERNATIVE TO BINARY OPTIONS.

European retail traders who fancy binary options will be pleased to know that IQ Option now offers an alternative to binary options – FX options. Retail traders from the European Union do not have access to IQ Option’s binary option and digital option instruments anymore due to ESMA (European Securities and Markets Authority) regulation, but they are now able to trade the FX options offered by IQ Option. Before we go into detail about the differences between FX options and binary options, let’s first take a look at FX options.

More About IQ Option’s FX Options

IQ Option’s FX options cover 13 forex currency pairs, Crude Oil Brent, Crude Oil WTI, gold, silver, and 7 stock indices. FX Options can be traded with the following expiry times: 10 minutes, 20 minutes, 30 minutes, 40 minutes, 50 minutes, and 60 minutes. However, because trades can be entered late, a trade’s actual expiry time may be less than the times mentioned above. For example, a 10-minute FX option contract can be entered more than 9 minutes late, which means that you can actually enter a trade which expires in less than 1 minute. Likewise, if you entered 5 minutes late on a 40-minute FX option contract, your actual expiry time would be 35 minutes from the moment you entered the trade.

Positions taken on FX option contracts can be closed prematurely (before the expiration time) and have virtually unlimited profit potential (for successful deals). Also, in the case of out-of-the-money trades, the amount which is lost can in some cases be less than 100% of the investment amount.

FX Options Versus Binary Options – What are the Differences?

Strike Price

With binary options, traders can only trade at the current strike price of the options contract but with FX options, they can choose between a number of different strike prices which are available at that particular time.

AN EXAMPLE OF AN FX OPTION ON THE EUR/USD WITH DIFFERENT STRIKE PRICES TO CHOOSE FROM.

Risk to Reward Ratio

Each binary option contract offers a reward that is less than the possible loss. For example, with an investment of $100 in a binary options contract with a profitability percentage of 90%, a trader will gain $90 (at expiration) in the case of a winning trade and lose $100 (at expiration) in the case of a losing trade.

Certain binary option contracts can be closed prematurely. In this case, the loss may be less than 100% of the investment amount in the case of a losing trade and the profit (in the case of a winning trade which is closed prematurely) will also be less than the maximum profit which might have been gained at the time of expiration.

On the other hand, FX options have the advantage of much more flexibility when it comes to risk to reward ratios. On each individual FX options contract, traders cannot lose more than the amount they invest. However, because they can choose the strike price, they have the ability to alter the risk to reward ratio. So instead of being limited to a maximum payout of, for example, 90%, they can achieve gains which are basically unlimited.

Contract Duration / Expiration Times

There is a notable difference between the expiration times available with binary options and FX options. IQ Option’s binary options (excluding OTC binary options) can be traded with expiry times that vary between 30 seconds and 30 days. There are a couple of expiries between 30 seconds and 10 minutes as well as two longer contracts, namely ‘end of the day’ and ‘end of the month’.

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As explained already, FX Options are expiring every hour. So, the big difference is, that with FX options, you don’t have access to the ‘end of the day’ and ‘end of the month’ expiries like you have with binary options.

Trading Availability Throughout the Week

While FX options can only be traded 5 days a week, certain binary options can be traded over weekends when FX options (and standard binary options) are not available. These instruments are called OTC (over the counter) binary options.

Currency Pairs / Instruments Available

When comparing FX options with binary options, we find that IQ Option offers many more binary options than FX options. With binary options, clients can trade roughly 34 currency pairs, 22 stocks, two stock indices, and gold. On the other hand, FX options are currently available in 13 currency pairs, 4 commodities, and 7 stock indices. The number of instruments available in binary options and FX options can change at any time, and IQ Option will probably add more instruments currency pairs to the group of FX options soon.

Regulation

As mentioned earlier, retail traders from the European Union are not able to trade binary options and digital options with IQ Option due to ESMA (European Securities and Markets Authority) regulations. On the other hand, retail EU traders are able to trade IQ Option’s FX options which comply with ESMA’s regulations.

With FX options, IQ Option has made a way for retail EU traders to trade a type of options contract that replaces the binary options that were previously available to them!

Different Platforms for Trading FX Options

CAUGHT IN ACTION: AN OPEN FX OPTION TRADE ON THE EUR/USD EXECUTED ON IQ OPTION’S MOBILE APP.

Retail EU traders who fancy FX options can trade it via IQ Option’s web, desktop, Android, and iOS platforms.

IQ Option Platform / Account Features

Fully Functional Demo Account (Free)

IQ Option’s demo or practice account is really worth mentioning. It has all the features of a real money account and does not expire like many other demo accounts. With this demo account, traders can practice with $10,000 virtual money and acquaint themselves with the markets and trading instruments before trading with real money. This account can be topped up to the original value of $10,000 at any time, which is a pretty convenient feature. Traders can also switch between their real and demo accounts without even leaving the trading platform. Don’t forget that IQ Option’s demo account is yours to use free of charge!

Low Minimum Deposit and Minimum Investment Amount

With a deposit of only $10, clients can access a real money account with IQ Option and start trading certain instruments like forex pairs, stocks, and commodities with an investment amount of only $1. FX options require a minimum investment amount of 25 euro or $30, however.

Indicators, Graphical Tools, and Widgets

IQ Option’s trading platform is equipped with all the tools you may need:

  • Technical indicators – Moving averages, oscillators, ATR, Ichimoku Cloud, Fractal, and many more.
  • Different chart types – Line charts, candlestick charts, bar charts, and Heikin-Ashi.
  • Graphical tools – Different lines including Fibonacci.
  • Widgets – See the following widgets right on your charts: ‘Traders’ Mood’, ‘High and Low Values’, ‘Other Traders’ Deals’, ‘Volume’, and ‘News’.

Customer Support

IQ Option clients can easily contact its support team via the ‘Chats and Support’ tab on the left side of the trading platform. At the bottom left of the platform you will also see a telephone number that you can call 24/7. The chat feature is also available at any time of the day and week. Customer support is available in 13 languages.

Trading Education

On the trading platform itself, traders can access video tutorials for free. These videos cover different subjects, which include information on FX options, binary options, digital options, different chart patterns, how to use different technical indicators, CFD trading, and the Crypto Digest.

Stock vs Option

Difference Between Stock and Option

The key difference between stock and option is that stock represent the shares held by the person in one or more than one companies in the market indicating the ownership of a person in those companies without the expiration date, whereas, the options are the trading instrument which represents the choice with the investor for buying or selling an underlying asset on the basis of option type to be executed before the expiry date.

Stock as an investment product is to invest in the shares of a company directly through buying the stock of that particular company and thus, it represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. Corporations issue stock, usually in two varieties: Common stocks and Preferred stocks.

  • Common Stocks: the Common stock is entitled to its proportionate share of a company’s profits or losses. The stockholders elect the Board of Directors who decide whether to retain those profits or send some or all of those profits back to the stockholders in the form of a dividend.
  • Preferred Stocks: These stockholders receive a specific dividend at predetermined times. This dividend ordinarily has to be paid first, before the common stock dividends, and if the company goes bankrupt, the preferred stockholders outrank the common stockholders in terms of potentially recouping their investment.

A stock option, on the other hand, is a privilege/option, sold by one party to another, which gives the buyer the right, but not the obligation, to buy or sell a stock (exercise the option) at an agreed-upon price (strike price) within a certain period (expiration date). Options are typical of two types: Call options and Put Options.

  • An option is considered a call when a buyer enters into a contract to purchase a stock at a specific price by a specific date.
  • An option is considered a put when the option buyer takes out a contract to sell a stock at an agreed-on price on or before a specific date.

Stock vs Option Infographics

Key Differences

  • It is similar to 2 persons betting against each other on future stock value. The person who speculates that the price of the stock will go down would sell call stock Options (known as writing option) to the other person (option holder) who speculates that the price of the stock is going to go up.
  • This allows the buyer to buy the stock at a fixed price no matter how much the value of the stock appreciates at the time of actual purchase and then either sell the call options on to another buyer at a higher price or exercise the right vested in the call options to buy the stock from the seller at the lower agreed price and thus benefits from the appreciation through the option but does not actually own the stock yet.
  • Also, Stock options are used as a risk management tool where they act as insurance policies against a drop in stock prices. At the cost of the option’s premium, the investor has insured themselves against losses below the strike price. This type of option practice is also known as hedging.

Comparative Table

Comparision Stock Purchase Stock Option
Ownership Stock Purchase represents ownership in the company.

The stock options represent the choice to buy or sell (depending on option type) a stock. Dividend/Voting rights Shareholder receives voting rights in important company matters and a share of the dividends (if any) paid by the company. Stock option holders received no dividend and also do not enjoys voting rights. Expiry The stock of a company does expire until the company exists. In this aspect, the stock is an asset. Options expire at a date in the future called the expiration date after which point the investor no longer has the choice to buy or sell. In this aspect, the option is an expense if they expire out of money (loss). Valuation Stock Prices are based primarily on market forces, company fundamentals such as the company’s earnings outlook, the success of products, etc. Stock option prices are based to a large degree on the price of the underlying stock, time to expiration and other factors.

Trading/Investment Stock is an investment instrument that can be sold to another investor at any point in time. The option is a trading instrument and cannot be traded post the expiration date.

Risk

Possible to lose the entire principal invested, and sometimes more. As the holder of an option, you risk the entire amount of the premium you pay. But as an options writer, you take on a much higher level of risk. For example, if you write an uncovered call, you face unlimited potential loss, since there is no cap on how high a stock price can rise.

Conclusion

  • The stock purchase is a traditional investment product where the investor invests in a company shares and expect returns in the form of dividend and capital appreciation.
  • On the other hand, options are a modern-day derivative product where the traders gain/loss based on the movement of a stock price value in the future time by paying a small premium amount to the writer of option instead of investing the amount equal to share value.
  • So to conclude, they are both important portfolio tools for an investor where stocks are good for long-term investment purposes and options are best who enjoy the flexibility and reduce the risk by hedging.

Stock vs Option Video

This has been a guide to Stock vs Options. Here we discuss the top differences between Stock and Options along with infographics and comparison table. You may also have a look at the following articles for gaining further knowledge –

What are FX Options on the IQ option Platfrom?

What are FX options and how to trade foreign exchange options at IQ Option?

FX options are contracts that gives you the right to exchange one currency for another at a preset exchange rate at a specified moment of time in the future.

What are FX options at IQ Option

There are two main types of FX options. A call option gives you the right to buy an asset. Of put option gives you the right to sell an asset.

Put and call options at IQ Option

How to trade FX options at IQ option?

Specify the amount of your investment on the right-hand side of the menu.

Chosing amount of investment

Select the expiration time the time when the option contract ceases to exist by pressing the time button.

Selecting expiration time

The expiration time is shown on the chart by the red solid line.

Expiration time – red line

Selecting strike price for FX options

Now select a strike price. A strike price is a set price of an asset at which it can be bought or sold in case the option is exercised. Strike prices are indicated in white and accompanied the chart.

Selecting strike price

Next to the strike prices, you can see the profitability scale. To check the potential profit for the chosen strike price mouse over the higher button for buy positions call options or over the lower button for sell positions put options. The green scale will be indicating your profit while the red one will be showing your loss.

Reading profitability scale for call and put options

You choose strikes manually thus influencing the size of the price band. Choose the price direction. Click on higher if you think that the price will go up. Click on lower if you believe the price will go down.

Selecting strike price manually

How to fix profit/loss before expiration time?

You may sell an option ahead of time and fix your profit or loss before the expiration time. In order to do this press these sell button.

Closing an option before the expiration

Have a pleasant trading experience.

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Best Binary Options Brokers 2020:
  • Binarium
    Binarium

    The Best Binary Options Broker 2020!
    Perfect For Beginners!
    Free Demo Account!
    Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

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