FX options trading basics and strategies | Episode 5: Zero-cost options usable for both offense and defense [Naota Onisi?]

Profile of Yohei Onishi

Financial journalist. After working at a publishing company, he became independent in 1995 and has contributed articles mainly on finance and economy to money magazines, business magazines, weekly magazines, etc. He covers a wide range of topics including interviews with analysts and strategists active at the front lines of the market, as well as top executives of listed companies. He is proficient in FX and financial trading in general.

Trading without Stop Loss is Possible

In any market, not just currencies, it is common for prices to move in the opposite direction of one’s expectations. Therefore, as a rule of trading, you place a stop loss in advance to prepare for such situations. In this regard, option trading allows trades that do not require setting a stop loss. In scenarios where an increase is expected, you simply buy the right to buy (call) at a predetermined strike price.

If you follow this, profits expand as prices rise, while losses are limited if prices fall against you. Conversely, in scenarios where a fall is anticipated, you buy the right to sell (put) at a predetermined strike price. Then, the more it falls, the more profits grow, and even if prices rise contrary to expectations, the loss is limited.

The limited loss refers to the option’s price, the “premium.” When you are confident about future moves, many traders feel that paying the premium is an unnecessary cost. In normal FX, you can take a bullish stance without deliberately setting a stop loss.