Here’S How To Differentiate An Option Buyer From An Option Seller

Two main personalities are involved in the trading of currency options, the forex option buyer and the forex option seller. To put it simply, a forex option is a currency contract dealt in foreign exchange that gives the forex option buyer the right to either buy or sell a specified spot contract at a specified price on a given date. The said price is called strike price and the given date is the expiry date. The “right” is bought by the options buyer from the options seller with an amount called “premium”.In Foreign exchange, the Forex option buyer is simply the investor that holds or purchases the currency option. He owns the right to exercise the option but under no obligation to effect the transaction if he deems it inappropriate. He gets the right to sell the option contract before expiry date or hold it till expiration, thereby taking a position. The financial obligation of the option buyer, initially, is the payment of the premium. If on the expiry date the option buyer decides to exercise his option and buy or sell the spot, that is the time more money gets involved. If upon expiry date he does not exercise his option, the contact is rendered expired and worthless, negating any other obligation on either the buyer’s or the seller’s part.The Forex option seller, on the other hand, is otherwise known as the writer or the grantor of the option contract. The option seller, by contract, is obliged to take the opposite position when the buyer decides to exercise his option. The premium paid to him by the option buyer makes him assume the risk of getting a position in the forex spot market that involves some risks. If the market movement is favorable to the seller, he need not post any fund. If it is unfavorable however, he may need to add funds to his account to maintain the required margin. Both buyer and seller have the right to offset the option contract before its expiration.

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