Navigating The Forex Market: Strategies For Mining Profits In Manchester City – Forex options are a relative unknown in the world of retail currencies. Although some brokers offer this alternative to spot trading, most do not. Unfortunately, that means investors are missing out.
FX options can be a great way to diversify and even hedge an investor’s spot position. Or they can also be used to speculate on long-term or short-term market outlooks instead of trading the spot currency market.
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Structuring currency options trading is actually very similar to trading stock options. Leaving complicated models and math aside, let’s look at some basic FX options setups used by both novice and experienced traders.
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Basic option strategies always start with plain vanilla options. This strategy is the easiest and simplest trade, where the trader buys an outright call or put option to express a directional view on the exchange rate.
Placing a straight or bare option position is one of the easiest strategies when it comes to FX options.
The AUD/USD chart is showing a double top which is ideal for a put option. Image by Sabrina Jiang © 2020
Looking at the chart above, we can see resistance forming just below the key AUD/USD 1.0200 in early February 2011. This is confirmed by the double top technical formation. This is a great time for a put option. An FX trader looking to short the Australian dollar against the US dollar simply buys a simple put option like the one below:
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The earning potential for this trade is endless. But in this case, the trade should be set to exit at 0.9950 – the next major support barrier for a maximum profit of 250 pips.
In addition to trading a plain vanilla option, an FX trader can also create a spread trade. Preferred among traders, spread trades are a bit more complicated, but become easier with practice.
The first of these spread trades is the debit spread, also known as a bull call or bear put. Here, the trader is confident in the direction of the exchange rate, but wants to play it a little safer (with a little less risk).
In the chart below, we see the 81.65 support level appearing in USD/JPY in early March 2011.
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This is the perfect opportunity to set up a bull call spread as the price level is likely to find support and go up. The implementation of the bull call debit spread would look something like this:
If the USD/JPY exchange rate crosses 82.50, the trade will profit by 52 pips (100 pips – 48 pips (net debit) = 52 pips)
Premium through the spread while maintaining the direction of the trade. This strategy is sometimes called a bull put or bear call spread.
With support at 81.65 and positive sentiment on the US dollar against the Japanese yen, a trader can employ a bull put strategy to take advantage of any upside potential in the currency pair. So, the store would be divided like this:
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As anyone can see, it is an excellent strategy to implement when a trader is bullish in a bear market. Not only does the trader gain from the option premium, but he also avoids using real money to execute it.
So what happens if a trader is currency neutral but expects a short-term change in volatility? Similar to comparable equity options games, currency traders will construct a straddle option strategy. These are excellent trades for an FX portfolio to catch a potential breakout or dormant break in the exchange rate.
A straddle is a bit simpler to set up compared to credit or debit spread trades. In a straddle, the trader knows that a breakout is imminent, but the direction is unclear. In this case, it is best to buy both a call and a put to catch the breakout.
USD/JPY volatility in February 2011 creates an ideal straddle opportunity. Image by Sabrina Jiang © 2020
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Looking above, USD/JPY fell just below 82.00 in February and remained in the 50 pip range for the next few sessions. Will the spot rate continue to fall? Or does this consolidation come before growth? Since we don’t know, it would be best to apply a straddle similar to the one below:
It is very important that the execution and expiration price are the same. If they are different, this could increase the cost of the trade and reduce the probability of a profitable setup.
The potential profit is infinite – similar to a vanilla option. The difference is that one of the options will expire worthless, while the other can be traded for a profit. In our example, the put option expires worthless (-45 pips), while our call option increases in value as the spot rate rises to just below 83.50 – giving us a net profit of 55 pips (150 pips profit – option premium of 95 pips = 55 pips).
Forex options are an excellent instrument for trading and investing. Not only can an investor use a simple call or put to hedge, but they can also refer to speculative spreads when capturing market direction. However you use them, currency options are another versatile tool for Forex traders.
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The offers appearing in this table are from fee-based partnerships. This fee may affect how and where ads appear. does not include all offers available on the market. Gold is part of many investors’ portfolios, as people largely look to gold as a safe haven in tough times. Short-term traders also buy and sell gold exchange-traded funds (ETFs) and mining stocks for quick profits…and losses. Gold trading can be dizzying. At times, the gold market is calm and barely moving – at other times, there is furious action going on.
When analyzing and trading gold or gold mining stocks, one main thing you need to look for is confirmation of the associated assets. Let’s explore what this means and how it can help you in the gold market.
When gold prices rise and fall, there are tools to help determine how strong the trend is. Here we look at how two different but related gold miner ETFs can be used together to identify and confirm gold price trends. Looking at these ETFs together helps make decisions about trading mining stocks and gold or gold ETFs.
Let’s start by finding uptrends. There are several key things to look for in a strong uptrend in gold:
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In the same way, these signals apply to gold downtrends, except that we are reversing expectations. In a weak gold market, the price of gold falls, gold miners fall more than gold (in percentage terms), and juniors fall even more than major miners. In this article, we will focus on the uptrend because most investors want to buy gold and avoid the downtrend.
Regarding the first point, gold and mining stocks tend to move together, although stocks often make the first move. For example, if gold prices stagnate, stocks tend to rise first, followed by gold. Once gold
Stocks are rising, which is good for both gold and mining stocks. Gold should start with higher lows and higher swings. This is the definition of an uptrend.
On the left side of the chart, gold starts to rise and develop an upward trend. This is the first thing to look for.
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On the second point, to believe this uptrend, gold mining stocks should also be rising. There are two ways to check if this is the case. Pull the gold miner index chart and see if it is rising or make a ratio on the chart that compares the miner index to the price of gold. The ratio is a more accurate way to determine if they are gold miners
The chart above is a ratio created by dividing the GDX price by the SPDR Gold Trust (GLD). When the ratio rises, the mining index rises faster than the price of gold. This helps confirm the uptrend for both mining stocks and gold. When the ratio starts to decline, it means that gold is outperforming stocks, which is not typical behavior in a strong rally. Therefore, caution is required. When the ratio started to fall, gold fell not long after.
When the ratio (or miners) are moving lower and gold is rising, the two markets are not validating each other. This makes it difficult to trade, as bullish moves in gold have not attracted traders in mining stocks to buy, so it is more likely that the move in gold will fail. However, if miners start to recover, then the two are aligned again, which could lead to further gains in both mining stocks and gold prices.
As a final check, compare the junior miners to the larger minors. During strong uptrends in gold, people are willing to jump in and buy smaller gold companies that are typically considered riskier, but also more
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