Retail forex options are expensive. You are usually paying around +100 pips for the premium, then another 10 pips if the options are exercised.
Also the options will expire at some time in the future.
Saxobank: 1.2050 EURUSD Call 1 Lot Expiry 14th October $1030.00
CFOS/FX : 1.2050 EURUSD Call 1 Lot Expiry 14th October $1070.00
An alternate strategy is to use a hedge position instead of using options. Hedges cost only the same spread again, and they expire when you close the position out. Also you can define you own risk. This is the number of pips between the buy and sell positions that form the hedge.
I have an account with fx solutions that enables you to trade in both direction simultaniously. I use this hedge method instead of using stops.
The drawbacks are that you are paying twice the spread, the interest can add up over the weeks and you have to be very patient. Also until you close out one of the positions, you are not making any money.
The benifits are that I no longer take losses due to being stopped out. The most I loose is the spread + the difference in between the buy and sell. Usually around 20pips.
You still have to use good technical analysis techniques to know when to close a winning position. When a position is closed out, you place another limit entry hedge 20pips away just in case you get it wrong. Also, when you know the market direction, place additional trades in that direction.
This works with some currencies better than others. For example, AUDUSD has been in a range for almost 1 year.
There are a lot of people against using this type of trading technique. All that I can say is that I'll never go back to using stops again. You can make up your own mind.
There are 2 traders on the _o_a_n_d_a forums that use a similar technique. They are Sympatico & Pips-mania.
Have fun,
Coder
