Exercise Style (European and American)

Exercise style is the term of an option contract that says when it may be exercised. A European-style option may be exercised only at expiry; an American-style option may be exercised at any point up to it. The names are conventions with no geographic meaning — either style can be written on any currency pair anywhere — and the style is a property of the contract rather than of the market it references. The distinction matters on both sides of the trade. It changes what the holder can do, since an American-style option can be turned into a position before expiry, which can make it worth more than an otherwise identical European one. And it changes what the seller must be ready for, because the obligation can arrive at any time rather than on one known date. Over-the-counter currency options are commonly European-style and listed contracts vary, so the only dependable statement about a particular contract is the one in its own terms or in the exchange's published specification. Exercise style also sits alongside the expiry time and the settlement date, which are separate terms and are routinely confused with it.