A number of firms are presently offering options on off-exchange
foreign currency contracts. Buying and selling forex options pres-
ent additional risks, many of which are similar to those inherent
in buying options on futures contracts. Therefore, you should
consult NFA’s brochure, Buying Options on Futures Contracts:
A Guide to Uses and Risks, which discusses the mechanics and
risks of options trading.
There are two significant differences between buying off-exchange
forex options and buying options on futures contracts. First, when
you exercise an option on an exchange-traded futures contract, you
receive the underlying exchange-traded futures contract. When
you exercise an off-exchange forex option, you will probably receive
either a cash payment or a position in the underlying currency.
Second, NFA’s options brochure only discusses American-style
options, which can be exercised at any time before they expire.
Many forex options are European-style options, which can be exer-
cised only on or near the expiration date. You should understand
which type of option you are purchasing.
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