What is such a financial enrichment instrument as a currency option with deposit coverage? What features exist here? What should be guided when making deals?
general information
Let's deal with the terminology. What is an option? This is a kind of contract that allows you to exchange one currency for another in the event that the transaction is winning, and refuse it if it is not profitable. In this case, you can act according to two schemes: “call” (call) and “put” (put). In the first case, it is possible to purchase a predetermined amount of currency on a specific day and at a pre-fixed price. Put provides for the sale under the same conditions. Deposited currency options are offered by banks to their customers. They are a carefully organized
financial investment product. It includes tools such as a currency option and a deposit. Why is such a product generally offered? Thus, banks provide an opportunity to earn their customers a higher percentage than offered by conventional deposits. But along with this, it is necessary to understand that savings are also subject to currency risk.
About the benefits
A standard currency option has the following advantages:
- An opportunity to receive a more significant income than under the terms of a simple deposit.
- Flexible choice of term, currency pairs, exchange rate and profitability.
- A short placement period, usually up to three months.
- Possibility of remote clearance.
Who is this suitable for?
Holders of cash savings, assets and liabilities, who have their own vision of how the rates will develop, can try options on currency pairs. Of course, if they are not afraid of risks. Choosing this type of investment, you must give preference to the base and alternative currency pairs, carefully selected placement period, as well as the exchange rate. What should I deposit money in? The base currency is used for this purpose. But it can be converted into alternative cash according to the previously set exchange rate. The income earned under this transaction is an option premium. It is formed from the difference in exchange rates. The currency options market is quite developed, so if you want to find a niche that is convenient for yourself, it is not difficult.
What do you need to do to earn money?
Suppose a reader is interested in a currency option transaction. What needs to be done to participate in it? On the day you register the option:
- Place a certain amount in a pre-selected base currency. As such, the Russian ruble, the euro, the US dollar, the British pound, the Chinese yuan or the Swiss franc most often act. Options may vary slightly in different financial institutions.
- The second currency is selected.
- The placement period is set. Typically, a range of seven to ninety days is available.
- The exchange rate as well as the premium for the currency option are negotiated. Remember that the higher the amount you claim, the higher the risks.
When the day of option determination comes, there are several options for further actions:
- If the rate is less profitable or equal to the one determined at the time of conclusion of the contract, then on the day of return the person claims to receive the amount of his investments, the interest on the deposit, as well as an option premium in the base currency. Alas, this is a failure.
- If the rate is more profitable than a certain person, then he receives all the amounts due to him in alternative currency.
Let’s say a word about the award
Probably, many readers are interested in one question. And how do you actually determine the value of the option premium? The task of paying cash is assigned to the trader who acquires the option. Such an option of investing funds together with interest accrued on the deposit will allow you to get a high income. Of course, if there were corresponding movements in the market. Let's look at a small example explaining how this system works. Suppose a person has an assumption that the value of the euro will increase in a week from 90 to 95 rubles. Since it involves the growth of the currency, the choice is made in favor of call options. Then they are bought from a broker, and often accompanied by certain surcharges. But let's not talk about them yet. If the rate has really increased, the value of the option increases along with it. Moreover, a person does not need any additional investments. The option itself can be stored until the end of its term or can be exercised at any convenient time until the end of the agreement.
On individual points and development
The tool considered in the article is constantly changing and improving. There is even something that did not exist before. One of the latest developments has become binary currency options. This is such an amazing transformation of securities that it is difficult to consider their ancestors in them. What is their feature? Initially, any asset was completely thrown out of circulation. The main object here is the price. Traders are interested in her behavior over a certain period of time, which is what they are betting on. If it is believed that the price will rise, then they take a “call”, and if it falls, a “put”. See, even these words have lost their original meaning. Moreover, the price of an asset does not depend on its behavior. In this case, the greatest interest is the percentage of the cost at the time of the agreed day to the amount of the bet. It is on this that the prize received depends. The more delivered, the greater the gain, as well as the risk of losing money. If the investor’s bet has not played, then the broker remains the bonus. As you can see, binary currency options provide that only one side will win.
How to make a profit?
The financial instrument under consideration attracts a large number of speculators of all stripes. Well, this is not surprising, because it allows you to get huge profits. And at the same time, probable losses are clearly recorded. But if this is such a profitable business, then why are there those who are willing to sell currency options? And the answer here is simple: the size of the premium that the option seller receives is commensurate with the risk of unlimited losses. Does it make sense to get involved in this whole story? To theoretically become a successful bidder is quite realistic. To do this, you only need to be the first to know about all fluctuations in the course, be able to predict its changes and possess information that others do not know about. Otherwise, it will be very difficult to compete. It should be understood that financial activities have significant risks. Here are some examples:
- The transaction price is overestimated in comparison with other types of investments.
- It is necessary to have in-depth knowledge in the field of finance, as well as relevant experience. Currency options are difficult to implement, and everyone cannot succeed in this area.
- It should be borne in mind that such an investment is extremely time-bound. Therefore, many contracts remain unfulfilled.
As you can see, making money in this case is not so easy as it might seem at first glance. Is it worth it to risk your money, time and nerves - everyone decides for himself. The main issues have already been considered, let's pay attention to additional points.
Administrative distinction
Initially, currency options began to be used in Europe. But over time, they gained great popularity in America. Now they are also widely used in Asia. At the same time, depending on geopolitical affection, their own characteristic features also appeared. The most popular now is precisely the American model of interaction. Its feature is the possibility of early exercise of rights. The European model aims to generate medium income with minimal risk. Asians perceive the option as a specific product for which there should be a price. For this, exchanges are widely used.
What to play on?
People who have decided, but have not yet begun to act, are mostly interested in the question: what are the best currency pairs for binary options? Alas, there is no one hundred percent correct answer here. To do this, you must have an understanding of the many different trends, specific points and other elements of a successful investment.
Let's look at a small example. Here we have euros, US dollars and yuan. What can we talk about in this case? The most predicted pair is the dollar and the yuan. The PRC government supports the export economy. And for this you need a cheap own currency. Therefore, they constantly lower the yuan against the US dollar. But this is not all possible field of activity. Another interesting currency pairs for binary options are Euros and dollars, as well as European Union money and RMB. True, one cannot clearly predict here. So, now the euro against the dollar is growing, although just a year ago it was steadily falling. And seriously, it was believed that the euro would be cheaper than the dollar.
Conclusion
You must be aware that financial activities involve huge risks. There are always those who lose and winners in it. And if there is no necessary knowledge, experience, grasp, then it is very likely to fall into the first category, to the losers. This topic is quite broad and requires considerable preparation. One could also talk about barrier and range currency options and other instruments of financial activity. But to fully cover this topic, even in passing, the size of the article is not enough. Even one book will not be enough. For people who want to conduct successful financial activities, it is possible to obtain a complete higher education, which now takes four years. Yes, not all the information that is taught is useful, but think about whether to compete with those who have studied well and have a high-quality understanding of financial processes.