A call option is a financial contract that gives the buyer the right, but not the obligation, to buy an underlying asset at a predetermined price (strike price) on or before a specified date (expiration date). In the forex market, call options are typically used to speculate on the future movements of currency pairs or to hedge against potential losses.
If a trader expects a currency pair to rise in value, they may purchase a call option on that currency pair at a predetermined strike price. If the price of the currency pair increases above the strike price by the expiration date, the trader can exercise the option and buy the currency pair at the lower strike price, then sell it at the higher market price to make a profit. However, if the currency pair fails to reach the strike price by the expiration date, the trader may let the option expire and only lose the premium paid for the option.
Call options are one of the two main types of options in the forex market, the other being put options. Together, call and put options provide traders with a range of strategies to profit from forex market movements, including speculation, hedging, and risk management.