Option Option
A contract that gives an investor the right to buy or sell a security, such as a stock, at a predetermined price during a specific time period. The investor is not obligated to exercise the option, as is the case with a similarly structured futures contract.
In foreign exchange, options are contracts that, for a fee, guarantee a worst-case exchange rate for the future purchase of one currency for another. Unlike a forward contract, the option does not obligate the buyer to deliver a currency on the settlement date unless they exercise the option. Foreign exchange options thus protect you against unfavorable currency movements while allowing you to participate in favorable movements.