6 Best Forex Brokers for Options Trading of 2024 (2024)

All forex options are either puts or calls, similar to regular options. Holding a put option conveys the right to sell while holding a call option conveys the right to buy. Like regular options, forex options are a riskier investment.

• The holder (buyer) of a put option has the right to sell the underlying asset at a specified strike price on or before expiration. A put option is a bearish (short) position that profits when the cost of the underlying decreases.
• The holder (buyer) of a call option has the right to purchase the underlying asset at a specified strike price on or before expiration. A call option is a bullish (long) position that profits when the cost of the underlying increases.

The gallery below contains pictures of forex options featured on the best forex options brokers.

IG is my pick for the best forex broker for options trading. IG offers exchange-traded as well as off-exchange (over-the-counter) options across a number of global marketplaces, as well as Turbos and other exotic options that cater to a wide variety of investor risk appetites. IG offers exchange-traded options in the U.S. through its TastyTrade subsidiary. In the EU, IG operates a Multilateral Trading Facility (MTF) for its exchange-traded forex options. It’s also worth noting that the off-exchange OTC options available at IG feature versatile contract sizes (compared to the standardized contracts you’ll find on exchanges).

Check out some screenshots of IG’s highly rated suite of trading platforms, taken during our product testing.

Below are seven terms every trader should know before trading forex options:

• Strike Price - The price level the contract can be exercised at (i.e., exercise price)
• Time Value - The portion of the premium represented by any remaining time
• Spot Price - The current market price of the underlying asset
• Premium - The value of time remaining plus any positive difference between spot and strike price
• Break-Even Level - The difference between the Spot price and any time value
• Intrinsic - The positive difference between the strike price and underlying spot price
• Extrinsic - The negative difference between the strike price and the underlying spot price

Aside from differences related to where you trade forex options, there are also different forex options types beyond the plain-vanilla options, including more exotic currency options. Here is a basic course on options. Below are examples of varying forex option types:

• Average rate options
• Barrier options (turbo warrants, touch brackets)
• Swaptions (converts to a swap position)
• Currency warrants (long-term options)
• Binary options (Digital 100s)
• Countdowns

While not suitable for all investors, options can be attractive to forex traders due to their inherent properties not found in other forex instruments. Below is a list of some of the perceived advantages of why investors trade forex options trading:

• Pre-defined risk when buying options
• No chance of a margin call or getting liquidated (except for Turbo or Barrier options)
• Can be used to offset or fully hedge an existing position
• A combination of options can create highly specific trading strategies
• Have pre-defined time remaining until expiry
• Can be highly risky if selling options with undefined risk or buying low probability out-of-the-money options

A put option is a bearish (short) position that profits when the price of the underlying decreases.

A trader who is expecting the price of the EUR/USD to fall by a specific date may purchase a put option with enough remaining time-value.

A call option is a bullish (long) position that profits when the price of the underlying increases.

A trader who is expecting the price of a currency pair such as the EUR/USD to appreciate by a specific future date may purchase a call option. The option should have enough remaining time-value to cover the trader's forecasted time-horizon for that trade.

Selling puts or calls to open a position will generally require considerably more margin than buying puts or calls. Forex traders in the US are required to get approval for that level of options trading, across the following four tiers:

• Level one options trading: Default level, includes protective puts and covered calls
• Level two options trading: Buying options (puts or calls)
• Level three options trading: Credit and Debit spreads (defined risk/reward)
• Level four options trading: Naked position (undefined risk)

Depending on what you are expecting in the market for a given forex pair and time-frame, there are over a dozen popular strategies used to establish an options position with predefined risk in anticipation of specific market behavior related to price direction and volatility, some of which are listed below:

• A combination position includes more than one option in the same contract at the same time.
• A straddle (or strangle) combines writing (or purchasing) both a put and call at the same strike price (or different strike prices) and the same expiration date.
• A spread position is one where you are both the buyer and the writer (seller) of the same type of option, although strike price and expiry dates can be different.

Some forex options lose value if the underlying spot price touches a barrier level, such as a turbo warrant (known as turbos, or touch brackets).

• For example, if a turbo call option trades at a level below its strike price (i.e., breaking its barrier), it becomes worthless, even if the price recovers before expiration.
• Meanwhile, other forex turbos can have a barrier level that is different than the strike price level. Furthermore, a Turbo may have a barrier that only activates at a specific time, such as after one touch.

Almost all forex options are cash-settled, where no delivery takes place. Thus, it can be convenient to trade these financial instruments in the same way investors trade non-deliverable spot forex (i.e., CFD trading).

Certain forex brokers will require that you are a professional client to trade options, such as Digital 100’s (binaries). At the same time, other brokers may also offer FX Forwards, in addition to forex options and currency futures, and forex instruments available to retail traders (i.e., CFDs).

All types of forex options trading should be considered high-risk investments. Whether trading out-of-the-money options that have a higher probability of expiring worthless and thus could be deemed “riskier”, or even when trading an option that is deeply in-the-money with lower-probability of expiring worthless. In all cases, forex options are risky, complex financial instruments, and even if you understand them well, they may not be suitable for everyone.

The profitability of forex options will depend on a variety of factors, such as its strike price relative to the underlying market, the prevailing spread, the scope of any intrinsic and/or extrinsic value remaining in its premium, and the difference between these values when entering the market. The net result will be either a profit, loss, or break-even when factoring in the cost of the trade (i.e. any bid/ask spread, in addition to the changes in the value of premiums).

Here’s an example:

An investor expecting that the EUR/USD will appreciate above 1.1500 may purchase an American-style call option with a strike price of 1.1500. After fees, their break-even point might be 1.1550; this would require that the EUR/USD move higher than that point before expiration for the option to be profitable.

Forex Risk Disclaimer

There is a very high degree of risk involved in trading securities. With respect to margin-based foreign exchange trading, off-exchange derivatives, and cryptocurrencies, there is considerable exposure to risk, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or related instrument. It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable, or that they will not result in losses. Read more on forex trading risks.