What is a foreign exchange option? | finder.com
foreign exchange option money transfers

What is a foreign exchange option?

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

A foreign exchange option — also known as an FX option or currency option — is a type of foreign exchange derivative. It’s all about giving you more flexible opportunities in the future and protecting you from unfavorable fluctuations in the exchange rate.

What is a foreign exchange option?

Just like its name implies, a foreign exchange option gives you the option to buy or sell an amount of money in one currency for another currency. You can exercise this option at a specified exchange rate up until an agreed-on date in the future.

When you buy the right to an option, you pay a fee to the seller of that option (called a premium). If you acquire the right to buy a currency, you have a call option. If you acquire the right to sell a currency, you have a put option.

Why is a foreign exchange option useful?

You can use a foreign exchange option to protect yourself if exchange rates move against you.

Among the advantages of an option is its flexibility — it doesn’t force you to buy or sell currency. If exchange rates are unfavorable, you can choose not to exercise your option and simply lose the premium you paid to the seller of the option.

Foreign exchange options: An example

Let’s say you need to pay your overseas supplier 5.5 million yen (a little under $50,000) in five months. The dollar-to-yen exchange rate is great right now, but you don’t want to exchange your money and sit around with a bunch of yen for months.

What you can do is put a call option on the yen — one that gives you the right to buy the currency in five months at the current exchange rate. If the dollar weakens against the yen (it other words, if it buys you fewer yen), you can exercise your option. If the dollar strengthens against the yen, even better — you can simply lose the premium you paid for the option and buy yen at a superior price.

Compare providers that can help you set up foreign exchange options

I want to send

to

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
$0 3 - 5 days USD 0.00 18.837 MXN 94,186 Save your business time and money with XE. Go to site Show details
$1 1 - 2 days USD 0.00 18.78 MXN 93,900 Great rates, and fast, efficient payment processing in most currencies Go to site Show details
$1 3 - 5 days USD 7.00 18.894 MXN 94,340 Enjoy high maximum transfers into more than 20 currencies while saving up to 90% over local banks. Go to site Show details
GBP 5,000 Same day USD 0.00 18.942 MXN 94,710 Increase business efficiency with zero transaction fees and same-day transfers. Go to site Show details
USD 5,000 1 day USD 0.00 18.818 MXN 94,091 Venstar will support you through the entire process of your international transactions, from start to finish. Go to site Show details

Compare up to 4 providers

I want to send

to

Min. Transfer Amount Transfer Speed Online Transfer Fee Rate Amount Received Description CTA Details
USD 0 1 - 2 days USD 0.00 18.837 MXN 94,186 Offering no maximum and no minimum limit transfers with $0 fees. Go to site Show details
USD 1 1 - 2 days USD 0.00 18.99 MXN
94,949
Enjoy high maximum transfers into more than 20 currencies while saving up to 90% over local banks. Go to site Show details
USD 1 Within an hour USD 0.00 18.732 MXN 93,662 Use promo code 3FREE to send your first 3 transfers with no fee. Send to 110+ countries for bank-to-bank deposit, cash pickup or mobile top-up. Go to site Show details
USD 1,000 1 day USD 0.00 18.799 MXN 93,995 No-maximum limit transfers with competitive exchange rates for 100+ currencies. Go to site Show details
GBP 1,000 1 - 2 days USD 0.00 18.913 MXN 94,567 Exclusive: Minimum transfer of $1,000 for Finder readers (normally $5,000).
For larger transfers, get no transaction fees and no maximum send limits.
Go to site Show details
USD 5,000 1 day - - Venstar will support you through the entire process of your international transactions, from start to finish. Go to site Show details
USD 50 1 - 2 days USD 0.00 18.666 MXN 93,328 Simple, zero-margin exchange rates, plus earn loyalty points on sign up, referral and every transaction. Go to site Show details

Compare up to 4 providers

Are there any drawbacks?

There’s always the possibility that you won’t be able to favorably exercise an option, in which case you’ll be holding a worthless option.

Is there anything else I should know?

Typically, time is working against you when you buy an option. That’s because the less time you have left in an option, the less of a chance you’ll see a favorable window to exercise it.
An introduction to forex futures

Frequently asked questions

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site