This is a security that allows currency traders to have gains without having to purchase the underlying currency pair. By incorporating leverage, forex options magnify returns and set a firm downside risk level. Alternatively, currency trading options can be held alongside the underlying forex pair to lock in profits or minimize risk. In this case, limiting the upside potential is usually necessary for capping the downside as well.

A contract that grants the holder the right to buy or sell currency at a specified exchange rate during a specified period of time.

Arrangement in which a party to buy or sell a specified amount of a currency on a fixed date and at a fixed rate.