After experimenting with securities for a while, most traders think about expanding their horizons a bit. Obviously, the forex and options market are the next steps. If you’re considering both of them, you should be aware of the differences between them, as these could actually help you make a decision.
In the next few minutes, we’re going to talk about how different these two trading instruments are, despite being very similar in practical use!
Usually, the options market remains open only during the normal market hours, 9:30 to 16:00 EST, from Monday to Friday. On the other side, the forex market is open 24 hours per day, even for those who are just beginners. However, there’s a catch!
During the so-called “dead hours”, the prices for options are frozen, no matter the news which could come during this period, with the ability to produce changes in the market.
Volatility and liquidity
The forex market is, hands down, the most liquid market in the world. This means that trading becomes easy and, thanks to this liquidity, forex is able to attract even mainstream investors, searching for efficient and stable markets.
Thanks to volatility and the number of investors it attracts, forex became the biggest market in the world!
Compared with the options market, we can say that things become stark. Depending on what options you’re choosing, you can end up trading against a couple of people across the entire world. Therefore, liquidity becomes lower, while the prices become more volatile.
Types of assets
Forex traders are working with currency pairs, which are the assets that they directly own. This is what we call spot trading. On the other hand, when they trade options, known as asset derivatives, they are actually trading a contract on an asset.
Yes, you can trade options on forex currency pairs. And yes, options do have some ‘features’ that assets don’t and may be used in sophisticated trades that play and buy and sell side at once, but can also lose money quicker, compared to assets.