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Currency trading comprises of currency option which is actually a contract that exist between a seller and buyer. The currency option gives the buyer right for trading a currency in the volume and price decided with in a specific period of time. This contract gives the seller an obligation for delivering a currency in the volume and price determined earlier only when the buyer really wants to perform that option. The currency options are best suitable for hedging as well as speculations. These options give an opportunity for optimizing the various individual strategies. The option prices are affected by the variations in prices of other tools in the trading of currency India. The currency options consist of segments which are growing fast in the forex. The biggest trading center for currency options is USA and then comes the United Kingdom in the second position. In the forex market, trading is done in terms of cash as well as futures. Corporations call banks and then trading can be done between each other directly or through brokers market. Option Prices are influenced by the price of currency, strike price, volatility of currency, date of expiry, differential interest rate, put or call and also American style of options. The influence of the price of the currency on the currency options can be measured using delta, gamma, vega and theta.
Delta in Currency Trading India
Delta is also called as A and it is derived from option pricing model. You can consider delta in three ways. You can take delta as a change in the price of the currency option on the basis of the fluctuations in the price of the currency. With the rise in the currency for about 10 percentage, the value of option corresponding to that particular currency need to increase by five percentage. Delta can be taken as a hedge ratio between currency futures contracts and option contracts necessary for the establishment of neutral hedge. Delta can also be considered as a theoretical share position.
Gamma is also known as curvature of option of the currency trading. It is a second level of derivation from the model of option pricing. It is also the change in the rate concerned with the delta of an option. Value of gamma can be something between 0 and 100 percentages. As the value of gamma becomes higher, the value of delta is more influenced. Gamma can also be considered as the rate of increase in the value of option based on the movement of currency.
Vega can be considered as the sensitivity of value of option on the basis of fluctuations in volatility. There is an expiry date for the options that are traded, if the option is not executed before this time of expiry then it cannot be used after this time.
Theta is measurement method which is also called as time decay of currency trading. Theta or time decay occurs when there are losses due to slow movement of currency.