Option trading

In options trading, calls and puts are the two different types of options contracts you can trade:

• Call options give you the right to buy the underlying market at the strike price before the option expires, giving the holder a long position
• Put options give you the right to sell the underlying market at the strike price before the option expires, giving the holder a short position

Options can be a useful market to get to know, but they are generally considered better suited to advanced traders. Why? Because there are a lot of factors that can impact their price movements – and because option sellers can end up taking on a lot of risk.

If you're a beginner trader, you might want to consider indices, FX or shares instead.

You can start trading options by opening a FOREX.com account. You'll get access to our full range of quarterly, monthly or weekly option CFDs, alongside thousands of other markets.

Or if you're not ready for live trading, you can test out options with virtual funds by opening a free FOREX.com demo account.

Options traders can unlock some powerful advanced strategies by buying and selling calls and puts. However, some of these strategies are recommended for experienced traders only, as they may involve taking on high levels of risk.

In a straddle, for example, you buy a call and put on the same market with identical strike prices and expiries. Then, if the market moves significantly in either direction, one of your options will earn a profit. If the market remains flat, though, you'll lose the premium on both options.

Options trading works using contracts which give the holder the right to trade an underlying market at a set price – called the strike price. Call options give the holder the right to buy the market, while put options give them the right to sell it.

If the underlying market moves beyond the strike price, the holder can exercise their option for a profit. If not, they lose the premium and the seller makes a profit.