Forex options brokers allow Forex traders to deploy complex strategies, hedge their positions, and mitigate risk. Not all Forex brokers offer options trading, which is the most popular in the US versus other markets. We have evaluated the options trading infrastructure and competitiveness among dozens of Forex options brokers. Our review covers everything you need to know to make an informed decision about Forex options trading and its suitability for your portfolio.
- AvaTrade, Highly regulated, choice of fixed or floating spreads.
- eToro, Best broker for social traders and crypto traders : 74% of retail CFD accounts lose money.
- IG International, Top broker for algorithmic trading and great choice of platforms.
- Saxo Bank, Great for professional traders, over 35k asset selection.
- CMC Markets, Tier 1 Liquidity and a great selection of assets..
AvaTrade
In Summary Highly regulated, choice of fixed or floating spreadsAvaTrade is one of the largest Forex / CFD brokers and well-known for offering their clients a choice of fixed or floating spreads. They have a very high and strong level of regulation. AvaTrade is directly regulated in Ireland (and by extension, the European Union), Australia, Japan, South Africa, and the British Virgin Islands. Outside the European Union, Ava offers maximum leverage on Forex currency pairs as high as 400 to 1. AvaTrade offers trading in over 55 different Forex currency pairs, 17 commodities, 20 equity indices, 14 cryptocurrencies, plus 66 individual stocks and shares. 2 bonds and 6 ETFs are also on the menu.
Pros & Cons
- High-quality educational offering via SharpTrader
- Excellent choice of trading platforms catering to various trading needs
- Broad asset selection and cross-asset diversification opportunities
- Well-regulated and trusted broker with oversight from a central bank
- Trading costs competitive but nothing special
eToro
In Summary Best broker for social traders and crypto traders : 74% of retail CFD accounts lose moneyeToro was founded in the early days of the online retail Forex era, in 2007 – this broker occupies a unique space as the king of social and copy trading. eToro has a long track record and unique reputation to protect, although this image is more focused on its copy trading model than on any other individual feature, except maybe its special relationship with cryptocurrencies. eToro is regulated in Cyprus, the U.K., Australia, and the United States although its U.S. offering is firmly differentiated from its offering to the rest of the world. eToro is a leading cryptocurrencies CFD broker. Following its 2019 acquisition of Danish blockchain company Firmo and Belgian crypto portfolio tracker application Delta, it released its cryptocurrency wallet for mobile devices.CFD crypto is not available for users in the US and under FCA regulation.
Pros & Cons
- Active investment community ideal for social trading
- Dedicated tools for social trading
- Broad cryptocurrency selection
- Expanding educational offering for beginner traders
- Internal withdrawal fees
IG International
In Summary Top broker for algorithmic trading and great choice of platformsIG Markets was founded in 1974 and has since become the world’s premier CFD broker, excluding Forex. The broker is known for its offering of trading platforms with full API support for algorithmic trading. International traders can get 1:200 leverage through the Bermuda subsidiary, though other regulators limit leverage to 1:20 and 1:50. IG offers 99 currency pairs plus three currency pairs for weekend trading, in addition to 700+ ETFs and 17,000 equity CFDs, among hundreds of other assets covering all asset classes.
Pros & Cons
- Excellent choice of trading platforms and superior asset selection
- Competitive trading costs with a volume-based cash rebate program
- Outstanding trading environment for algorithmic trading, including API support
- Comprehensive educational tools for beginner traders
- Limited deposit and withdrawal methods
Saxo Bank
In Summary Great for professional traders, over 35k asset selectionSaxo Bank offers option contracts listed on 20 exchanges, placing it among the best options brokers. Saxo Bank also shines with its trading tools customized for options trading, including an option chain, a strategy builder, an option roll feature, and integrated risk data. By default, Saxo Bank only allows traders to buy options. Traders with an account balance of $5,000+ who sign a written acknowledgment of involved risks can also sell options.
Besides listed options on stocks, indices, and futures, Saxo Bank offers Forex vanilla options. Traders can easily switch between options by linking option chains to watchlists.
Pros & Cons
- Large Banking Institution
- Fully Regulated
- U.S. Traders Not Accepted
CMC Markets
In Summary Tier 1 Liquidity and a great selection of assets.CMC Markets introduced options trading to its wealth of markets, for which it introduced a feature in its proprietary CMC Markets Invest Pro trading platform. The user-friendly interface and range of options place CMC Markets among the best options brokers. Traders benefit from options pay-off diagrams and strategy analysis, STP order processing, multi-leg options orders, and options finder and pricing tools. CMC Markets offers American and European-style options, and traders can easily access the option chain from each asset.
Options strategies depend on the options level, which maxes out at four and requires traders to pass a quiz.
Pros & Cons
- Award Winning Platform
- Tight Spreads
- Demo Account Available
- No Bonuses
What are Forex Options?
Forex options are derivative contracts on the underlying currency pairs. For example, a put or call option in the EUR/USD grants traders the right, but not the obligation, to exercise the option if the EUR/USD price reaches the strike price. Forex options brokers maintain the infrastructure for traders to buy and sell Forex options.
While options trading is more dominant in the US versus international markets, where CFDs are the primary derivative contract, it is available in most markets. Forex options trading carries a degree of risk most other securities lack, as the value drops to zero at the expiry time.
Unlike futures contracts, which are legally binding contracts to deliver the stated assets, options grant traders the right but not the obligation to execute. Options traders must understand that the value of their option contracts will drop to zero at the expiry time, irrelevant to the underlying asset price.
How Do Forex Options Work?
Forex options brokers allow traders to buy, sometimes labeled write, a call option if they believe the price of the underlying currency will rise in value or write a put option, identical to short selling if they believe price action will contract.
Forex options trading allows traders to lock in a specific price, similar to buying the underlying asset. The difference is notably lower capital requirements and trading costs versus other methods of gaining exposure to Forex price action.
Different Types of FX Options
Not all Forex options brokers provide the same variety of Forex options, and traders should carefully consider if the available products suit their strategy.
Here are the primary types of FX options:
- 1. Over-the-counter (OTC) options: They grant exposure to the underlying asset without taking delivery. Many sub-types of OTC options exist, offering the most variety in expiry times, pricing, and structure, creating the most opportunities.
Sub-types of OTC FX options include:
- Average rate options (ARO, usually used by businesses to hedge against currency fluctuations)
- Barrier options (turbo warrants, touch brackets triggered when price action touches the upper or lower bracket during its lifetime)
- Binary options (sometimes referred to as Digital 100s following the collapse of the now defunct binary options sector)
- Countdowns (time-limited options that must reach a specific price during their lifetime, often as low as one minute, before they expire worthless)
- Currency warrants (long-term options)
- Swaptions (converts to a swap position, typically interest rate swaps)
- Exchange-traded options: They are also known as listed options and represent standardized contracts to purchase a specific quantity of currency pairs or other products. Exchange-traded options are guaranteed and cleared via a clearing house, which attracts significant numbers of traders, including institutional ones.
- MTF-listed options: Traded across Europe via electronic exchanges, they facilitate the transfer of various securities. MTF, short for multilateral trading facility, offers complete transparency, and operators within the MTF framework cannot pick and choose which transactions to execute.
What are Forex Put and Call Options?
Forex options brokers offer put and call options. Put options grant the holder the right but not the obligation to sell the specified volume of the underlying currency pair at the strike price by the expiry date and time or before. Call options represent the right to buy. Put options are bearish, and call options are bullish.
Basic FX Options Strategies
Options traders may use various strategies at their Forex options brokers. We have outlined some basic FX options strategies beginners can consider.
Here are several basic FX options strategies:
- Covered all - Buying the underlying asset and a call option
- Married Put - Buying the underlying asset and a put option
- Bull Call Spread - Buying a call option at a specific strike price and selling the same volume of call options at a higher strike price
- Combo Position - Multiple options in the same contract
- Straddle - Buying put and call options with the same expiry
Is Forex Options Trading Legit?
Forex options brokers and Forex options trading are legit. Many trade OTC, but exchange-trade options have regulatory oversight with guarantees from an options clearinghouse. Therefore, a small regulatory fee applies to all options trades.
Forex Options - Pros & Cons
Before opening an account with Forex options brokers, traders should consider the pros and cons of Forex options.
The pros of Forex options are:
- Trading opportunities
- Hedging
- Risk mitigation
- Price management
- Leveraged trading
- Low transaction fees
The cons of Forex options are:
- Increased risk
- Many traders lack the understanding to trade Forex options effectively
- Availability
How Do Forex Options Differ Across Brokers?
The availability and variety of Forex options can differ among Forex options brokers, but the core principles remain identical.
Here are the differences traders may experience among Forex options brokers:
- Execution policies (speed, fees, order types, slippage)
- Option styles and products (American-style, European-style, exotic options, trading platforms, trading tools)
- Trading symbols of the underlying assets
- Contract sizes and specifications (lot sizes, leverage, expiration times, regulatory compliance)
What Time is Best to Trade Forex Options?
Forex options brokers provide 24/5 Forex trading, and the best time depends on the trader and their strategy, but some periods provide greater liquidity, lower costs, and more opportunities.
Here are the three crossover sessions Forex options traders should consider:
- Sydney - Tokyo (JPY, AUD, NZD, HKD, SGD, CNY, INR, USD)
- Tokyo - London (JPY, EUR, GBP, CHF, USD)
- London - New York (EUR, GBP, USD)
Bottom Line
Forex options brokers allow Forex traders to execute many strategies, hedge positions, or mitigate risk but differ in their execution policies, option styles, products, contract sizes, and specifications.
You might also be interested in reviewing the below top brokers:
