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Options are typically portrayed as a form of financial insurance, no less useful than property and casualty insurance.

This glossy rationale masks the reality: if it is insurance then a currency option is akin to buying theft insurance to protect against flood risk.

Most trading is over the counter (OTC) and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts.

The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at 8.3 trillion in 2005 For example, a GBPUSD contract could give the owner the right to sell ? In this case the pre-agreed exchange rate, or strike price, is 2.0000 USD per GBP (or GBP/USD 2.00 as it is typically quoted) and the notional amounts (notionals) are ? This type of contract is both a call on dollars and a put on sterling, and is typically called a GBPUSD put, as it is a put on the exchange rate; although it could equally be called a USDGBP call. If instead they take the profit in GBP (by selling the USD on the spot market) this amounts to 100,000 / 1.9000 = 52,632 GBP.

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