Options offer a similar way to reduce risk through hedging. But unlike futures, options give you a choice to buy or sell an asset at a predetermined price on or before a specific date. After paying a purchase price (the premium), an option contract can protect you from unwanted appreciation or depreciation in a currency pair.

For example, if a British company sells goods and services in the US, they could purchase a GBP/USD call option. This instrument allows them to buy GBP/USD in the future at a predetermined price. If the pound has appreciated or maintained its rate when the US dollar payment is made, the company has only lost the price paid for the options contract. If the pound depreciates against the dollar, they will have hedged their rate already and can get a better price than offered on the market.