Forex - Limited Risk Options

Limit your exposure without closing your position. Forex - limited risk options exclusive to IG clients.

Why trade forex - limited risk options with IG?

  • Trade on the short-term direction of a forex market

  • Limit your risk when you place the trade

  • Multi-device platform - desktop, mobile, tablet

  • Profit potential is not capped

  • Free live prices, data and expert analysis

  • Positions stay open if prices move through your caps

  • Trade on the move

    Use our mobile and tablet apps to trade whatever the time, wherever you are.

  • Forex Market insights

    View client sentiment data and analysis as well as daily commentary from our experts.

What is Forex - Limited Risk Options?

Available on FX pairs, Limited Risk Options cap your potential loss with a floor or a ceiling - while your potential profit is not capped - and they keep positions open if prices move through those caps.

Options trades are typically categorised as puts or calls.

  • Buying a call option provides the right to buy an asset at a set price.
  • Floors on Upside Limited Risk Options work in a similar manner. If the asset price falls below the floor, you are protected against any further loss.
  • Buying a put option provides the right to sell an asset at a set price.
  • Ceilings on Downside Limited Risk Options work in a similar way. If the asset price rises above the ceiling, you're protected against further loss.

Summary of standard spreads

 

Value of one contract
(per point)

Dealing spread

EUR/USD

US$10

2

AUD/USD

US$10

2

USD/JPY

Y1000

2

EUR/JPY

Y1000

2

GBP/USD

US$10

2

GBP/JPY

Y1000

2

 

Forex - limited risk options product details

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Example: Example trade held until expiry

Example Trade - Held until expiry

You think the dollar will depreciate against the euro, and choose to trade our EUR/USD (Daily) Upside Option contract, which has a floor of 12,500.

The underlying spot rate for EUR/USD is trading at the floor level of 12,500 at 15:00. As you think the rate will be above the offer price of 12,518 at the 23:00 expiry, you buy 2 contracts. Each pip that the price moves is worth $10 per contract.

Your deposit for the trade, which is the maximum amount at risk, is the difference between your entry price and your floor, multiplied by the tick size and the number of contracts traded. In this case the difference between your opening price (12,518) and the floor level (12,500) is 18 pips. Multiply 18 by the number of contracts (2) and the contract value per pip ($10) to calculate your maximum amount of risk.

Deposit (Maximum amount of Risk) = 18 x 2 x $10 = $360 USD.

Profit - Without a ceiling

  • At 23:00, the expiry value of EUR/USD has risen to 12570.
  • As your profit is not limited by a ceiling, it is calculated using the expiry price.
  • The difference between your opening price (12518) and the expiry price (12570) is 52 pips.
  • Multiply 52 by the number of contracts (2) and the contract value per pip ($10) to calculate your gross profit.

Profit = 52 x 2 x $10 = $1040

Loss - Limited by a floor

  • At the 23:00 expiry, the value of EUR/USD has fallen to 12420.
  • This is below the floor of this trade, so your loss is calculated against the floor level of 12500.
  • The difference between your opening price (12518) and the floor level (12500) is 18 pips.
  • Multiply 18 by the number of contracts (2) and the contract value per pip ($10) to calculate your gross loss.

Loss = 18 x 2 x $10 = $360

Example: Example trade closed before expiry

Example Trade - Closed before expiry

It’s 08:00 and you expect AUD/USD to appreciate over the day. As you feel this will be an intraday movement, you take a position in the AUD/USD (Daily) Upside Limited Risk Option, with a floor.

The current spot price is quoted by IG at 10,116.2/10,118.2. You purchase 3 contracts in the AUD/USD (Daily) Upside Option (with a floor of 10,020), currently priced at 10,117.7/10,119.7.

Your deposit for the trade, which is the maximum amount at risk, is the difference between your entry price and your floor, multiplied by the tick size and the number of contracts traded.

In this case the difference between your opening price (10,119.7) and your floor level (10,020) is 99.7 pips. Multiply 99.7 by the number of contracts (3) and the contract value per pip ($10) to calculate your maximum risk.

Deposit (Maximum amount of Risk) = 99.7 x 3 x $10 = $2991 USD.

Profit - Without a ceiling

In mid-afternoon, spot AUD/USD has risen to 10152/10154.

  • You close the position to realise your profit.
  • The quote for the AUD/USD (Daily) Upside Option (with a floor of 10020) is 10153/10155.
  • The difference between your opening price (10,119.7) and your closing price (10153) is 33.3 pips.
  • Multiply 33.3 by the number of contracts (3) and the contract value per pip ($10) to calculate your gross profit.

Profit = 33.3 x 3 x $10 = $999

Loss - Limited by a floor

Alternatively, after the afternoon rise you assume the price will continue to move in your favour.

  • You hold the position 'til the 23:00 expiry, however spot AUD/USD falls back to 10082/10084.
  • On expiry, your position is closed, recording a loss.
  • The difference between your opening price (10119.7) and your expiry price (10082) is 37.7 pips.
  • Multiply 37.7 by the number of contracts (3) and the contract value per pip ($10) to calculate your gross loss.

Loss = 37.7 x 3 x $10 = $1131

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