What is the difference between Forex trading and Options trading ?

Foreign exchange trading, also known as forex or FX, is a global marketplace where participants trade national currencies.

Options trading allows participants to benefit from asset movements by trading puts and calls with less cash outlay than required to buy the underlying asset.

Both markets are characterized by the use of leverage with many other similarities as well as differences, and traders often engage in both markets.

Options are financial contracts that give the holder the right but not the obligation to buy or sell an underlying asset at a predetermined price and time, while creating a potential obligation for the option seller to buy or sell the underlying asset (if and when the buyer exercises the option contract).

Calls and puts are the two option types. Calls are the right to purchase an underlying asset while puts are the right to sell an underlying asset.

Options can be found on stocks, exchange-traded funds (ETFs), and on futures. With options trading vs. forex, an important distinction is that the options market is a derivatives market.

Forex trading is the buying and selling of national currencies in a 24-hour market. In general, the forex market is considered the most liquid market in the world. While many currency pairs feature strong liquidity, there are still some that do not have a lot of buyers and sellers.

Trading forex vs. options often involves higher leverage and volatility risks.

When looking at forex vs. options, forex often offers more leverage. That means brokers allow you to trade with more capital than you have deposited in your account. With leverage comes the potential for massive gains, but also the risk of steep losses.

Brokers want to keep your risk in check, though. They often do that by requiring forex traders to enter stop-loss orders immediately once they take a position.

Another aspect that can make brokers nervous is volatility. The forex trading market can feature periods of relative calm followed by explosive volatility. When volatility strikes, currency pairs can become less liquid, leading to difficulties when attempting to exit trades. Forex options can be used to profit from volatility, however.