Should Speculators use Currency Futures or Options
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Should Speculators use Currency Futures or Options
The first option is correct because if speculators have confidence in their expectations, then it would mean that they would avoid enormous premium costs needed to cater for option currency. According to Kolwaski and Scott (2020), future currency is more liquid than currency options. It means that the late circulation of the currency future would be higher than the option currency. Therefore, it is correct to say that if speculators do not have confidence in speculation, they should not speculate at all. Option currency would require a massive premium and more time for speculations and, thus, would not give speculators a good experience (Kolwaski & Scott, 2020). When speculators choose a future currency, it will be possible to conduct day to day trading, unlike option currency that is less liquid and has more downside risks. Option currency will only move in correlation with future currency, which means that speculators will need to rely on future currency to opt for option currency (Kolwaski & Scott, 2020).
Moreover, future currency gives speculators the period to make decision-based on their confidence with expectations. The aspect means that speculators can estimate the risks involved and predict the outcomes (Kolwaski &Scott, 2020). Where the outcomes would not meet expectations, speculators can decide not to speculate and vice versa. Additionally, options currency would not be the last resort where speculators have high confidence about investment because options currency can have an expiry date. Thus, speculators may lose, especially in a situation where the assets may not be durable. Although in option currency, speculators will only lose what they invest, there might be minimal currency circulations, reducing the rate in which speculators could maximize profit. However, with future currency, speculators may have the opportunity to explore, and probably in the process, make better returns. Therefore, the future currency would be better than option currency.
Reference
Chuck Kolwaski & Gordon Scott. (2020). Should You Trade Futures Contracts or Options? It can depend on your risk profile and time horizon. Retrieved from https://www.thebalance.com/should-you-trade-futures-contracts-or-options-809157