One of the disadvantages of the forward and futures contract is the risk of losing the profit from favorable currency movement. That is why currency options were offered by Commercial Banks to give the consumers another choice of hedging. Currency option can be seen as the right, but not the obligation, to purchase or sell an underlying asset as a set price and date. By exercising currency option, holders have the right to either buy or sell in order to gain profit.  There are two types of currency options: put and call options. The call option is the right to buy a currency, and the put option is the right to sell a currency. Nonetheless, when you exercise a currency option, you have both the call and the put right. What it means is that when you buy the pound against the dollar, you also have the right to sell the dollar against the pound in that same transaction. One of the interesting things about American option and European option s the way they are exercised. With the American option, they can be exercised at any time up to the expiration date. Meanwhile, European option can only be exercised at maturity. In addition, option holders should only exercise an option when its strike price, the price at which the option is exercised, is less than the spot rate, the current exchange rate, in order to gain profit.  There are two types of market structures in which currency potions can be traded: an organized exchange and over-the-counter (OTC) market. The main difference between the two types is its flexibility. With over-the-counter options, contracts are negotiable in terms of the amount, exercise price and rights, underlying instrument, and expiration. On the other hand, exchange-traded options are just standardized contract with predetermined price and expiration. Typical users of currency option are financial firms with large investments overseas. Currency options are their best choice to avoid the risk of exchange rate changes. One more thing about currency option is the idea of currency spread. This “allows speculators to bet on the direction of a currency but at a lower cost than buying a put or a call option alone.” There are also two types of currency spread: bull spread (buying a call option) and bear spread (buying a put option). Overall, option contract can be compared with forward contract in term of similarity since both of them can be customized to fit the desire of buyers and sellers.