Trading Options on Foreign Exchange: The Best of Both Worlds

There are several ways to play currencies nowadays. The spot and futures markets offer maximum leverage — a trader's playground; ETFs and currency CDs offer slow and steady investing — perfect for buy-and-hold types; Options on currencies make up an alluring balance of the two.

Options have long been praised for their massive upside return potential, while strictly limiting risk to the size of your investment ... and not a penny more. That means you can't lose more money than you initially pay to purchase an option, AND you still have the ability to double and triple the money you put down.

Currency options aren't entirely fresh to the forex scene. Informed market players big and small have had access to them for years. But now, there's a new and easier way to gain foreign exchange exposure via options.

Just one year ago the Philadelphia Stock Exchange unveiled its World Currency Options .

In other words, they opened up a whole new world to traders and investors once intimidated by foreign exchange. World Currency Options offer all the benefits of options — significant leverage and strictly limited risk — while allowing access through a standard equities brokerage account.

Basically, you can trade these options just like you would any option on any U.S.-listed stock. No forex account and no futures account necessary.

Things to Know Before You Go ...

In dealing with these options I recommend you only take the long side when opening a position. That means you'd be buying put options or call options. You'd only be selling put options or call options when exiting a position.

Even with this guideline, you can still ...

1. Be profitable no matter if prices are rising or falling. In other words, you're able to make money on any currency that's falling (by purchasing put options) just as easily as if it were climbing (by purchasing call options).

2. If you've been buying call options on the euro over the last couple months, chances are you've been raking in the dough. This week, however, things are looking up for the buck, and you may want to consider put options ... whether just for the near-term or over the next several months.