Forex - Limited Risk Options Examples

You can close Limited Risk Options positions at any time in the day before expiry at 23:00. If left open until expiry, you are assured that the potential loss is limited by a floor or a ceiling, while your potential profit is uncapped.

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 12500.

The underlying spot rate for EUR/USD is trading at the floor level of 12500 at 15:00. As you think the rate will be above the offer price of 12518 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 (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 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.

Profit = 18 x 2 x $10 = $360

 

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 10116.2/10118.2. You purchase 3 contracts in the AUD/USD (Daily) Upside Option (with a floor of 10020), currently priced at 10117.7/10119.7.

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 (10119.7) and your floor level (10020) 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

For details of the spreads and dealing hours of our Limited Risk Options, please see the Contract Details.

 

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial investment, so please ensure that you fully understand the risks involved.