Course Content
What Is Forex Trading?
Forex is the world's largest market by trading volume and liquidity. Brokers, businesses, governments, and other economic agents trade currencies and forex derivatives to enable international commerce. Traders also use the market for speculative reasons. There are various arbitrage opportunities to be found with exchange rates and interest rates, making the market a popular one to trade in large volume or on leverage. The forex market consists of fiat currency pairs and their relative market prices. These pairs are typically bought and sold by the lot. A standard lot contains 100,000 units of the pair's base currency, but other smaller sizes are available, ranging down to 100 units. Traders commonly use leverage to increase the amounts they can invest with their capital. You can also offset risk by using forwards and swaps to trade a currency pair for a specific price in the future. Combining these two instruments with other trading strategies and products creates a variety of investment opportunities for forex traders.
What Is Forex Trading?
About Lesson

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.

For more on futures and options contracts, check out What Are Forward and Futures Contracts? and What Are Options Contracts?.