Within an option trade, the traders purchase the possibility to make a future exchange of currencies, at a previously established rate (strike). A premium constitutes the payment for that option, which is calculated by various variables, such as the established exchange rate, and it is measured in percentage.
Main types of options:
Call Option – a contract which gives the trader the right to purchase the currency at an established rate and time.
Put Option – a contract which gives the trader the right to sell the currency at an established rate and time. If the other side executes the option, the seller must purchase the base currency.
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