FX Options Trading Conditions

 

 

FX Vanilla Options Trading Conditions

Award winning pricing

As a global market leader in the OTC foreign exchange ​Options trading, Saxo Bank provides you with access to available ​liquidity and live streaming prices. Saxo Bank enables trading FX Options on live streaming prices and offers competitive prices and tights spreads.​ Saxo Bank’s options’ prices are displayed on your trading platforms as dynamic Bid/Ask spreads. The options’ bid/ask spreads are of a variable nature and depend on the contract’s maturity and an underlying currency pair

Samples of current live FX Vanilla Options spreads, updated hourly, are available under 'Spreads' - see Prices.

Choice of Exercise method

Forex Vanilla Options that are 'in the money' are automatically exercised at 10:00 am EST (New York cut) on the day of expiry. By default they are converted to a spot position.

Up until one hour before exercise you may choose between receiving the spot position ('spot') or having Saxo Bank automatically exit the spot position at mid-price of the spread at the time of exercise ('cash'). There is no limit to the number of times you may change the exercise method.
 
The 'cash' exercise method is available on both long and short positions and will always happen at mid-spread - even in volatile market conditions.
 
If the 'spot' exercise method is chosen, the spot position is subject to the usual profit/loss if the spot price moves from the exercise price. If you already have an offsetting position at the time of exercise, the exercised position will be netted out on the following day.

Auto execution

The majority of orders on FX Vanilla Options are handled automatically. This means all orders below an auto execution limit, which varies by instrument, delta and maturity, are accepted with no manual intervention by the dealing desk.

The auto execution limits are displayed in the trading platforms under Forex Options Trading Conditions.

Note that auto execution limits may be changed without prior notice under volatile or illiquid market conditions.

Expiration Style

Saxo Bank offers European style FX Vanilla Options, when the option will be exercised or expire only at the expiry date and cut at 10:00 Eastern Standard Time (New York cut). Positions cannot be exercised prior to maturity.

Since Saxo Bank always quotes both bid/offer prices, you are always able to close your position before maturity at the current market price. The long and short positions will then be netted out prior to expiry.

Minimum Trade Size

The minimum trade size for FX Vanilla Options on currency pairs is 10,000 units of base currency; and for precious metals 100 oz (Gold) and 10 oz (Silver).

Risk Warning for FX Options

You should be aware that in purchasing Foreign Exchange Options, your potential loss will be the amount of the premium paid for the option, plus any fees or transaction charges that are applicable, should the option not achieve its strike price on the expiry date.

Certain options markets operate on a margined basis, under which buyers do not pay the full premium on their option at the time of purchase. In this situation you may subsequently be called upon to pay margin on the option up to the level of your premium. If you fail to do so, your position may be closed or liquidated.

If you write an option, the risk involved is considerably higher than buying an option. You may be liable for margin to maintain your position and a loss may be sustained well in excess of the premium received.

By writing an option, you accept a legal obligation to purchase or sell the underlying asset if the option is exercised against you; however far the market price has moved away from the strike. If you already own the underlying asset that you have contracted to sell, your risk will be limited.

If you do not own the underlying asset the risk can be unlimited. Only experienced persons should contemplate writing uncovered options, then only after securing full details of the applicable conditions and potential risk exposure.

Updated 29th April, 2014

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FX Touch Options Trading Conditions

Dynamic Bid/Ask spreads

FX Options are available on live streaming bid and ask prices. Spreads vary depending on maturity and the currency pair.

The pricing displayed on your trading platforms is dynamic bid/ask spreads, quoted as a percentage of the potential payout, reflecting the market's expectation of the probability that the spot rate will reach (or not reach) the trigger (or barrier) level prior to expiry. 

Pricing / Premium

The price of a Touch Option is called the Premium and is expressed as a percentage (%) of the potential payout.

For instance, for a notional size of 1,000 and a price of 10%, the Premium will be 100 units of base currency and the Payout will be 1,000 units of base currency.

For long positions you pay the Premium and for short positions you receive the premium.
 
Example:​ ​ You are looking for a potential payout of EUR 1,000 if EURUSD reaches 1.3000 within two weeks.​
The price of the One Touch Option is 20%. ​
You the pay EUR 200 (EUR 1,000 x 20%) for the option. ​
If the EURUSD spot price reaches 1.3000 before it expires you receive the pay-out of EUR 1,000 (net profit of EUR 800). ​
If it doesn't reach the trigger level of 1.3000 your loss on the trade is the initial premium you paid for the option (EUR 200).​

Tradability

There are safeguards in place to prevent erroneous trading. Thus, for each currency pair a 'tradability value' has been set. The rationale for this parameter is to restrict your trading when the probability of the trigger being touched (or not touched) is too close to 100%. This is done to protect the client from making a mistake, e.g. paying 100% for a One Touch or selling a No Touch when the bid is 0%.

The current parameters are:

Currency cross​ Tradability value​ Currency cross​ Tradability value​
EURGBP​ 0.25%​ GBPUSD​ 0.15%​
EURJPY​ 0.20%​ USDJPY 0.25%​
EURUSD​ 0.15%​ AUDUSD​ 0.20%​

 

Please note that the tradability values are subject to change without prior notice.

You are, of course, never restricted from closing an existing open position, no matter what the proximity of the trigger level to current spot. Closing prices may, if close to expiry, be offered on an RFQ basis only.

Example:
You want to buy a One Touch Option with 3 months to expiry and the trigger (or barrier) price is 10 pips away from the market. In this case, the Premium would be 100% (or close to) and Saxo Bank will automatically reject the trade.

Minimum Trade size & liquidity

The minimum trade size is 100 units of base currency to trade FX Touch Options with Saxo Bank.

Live prices are available up to 25k (for tenors 1m -14). RFQs is possible for larger amounts, and a dealer will manually provide a two way quote.​

Maturity

The offered maturities are standardised on the Options Board covering maturities from 1 day to 6 months. The Option Trade Ticket on your trading platforms offers shorter and longer maturities, i.e. from 1 day to 1 year.

Exercise & Expiry

Unlike the FX Vanilla Options, Touch Options are automatically exercised ​when the trigger level is reached any time prior to expiry. If the trigger level has not been reached during the live time of the option, a No Touch generates the payout, whereas the One Touch option expires automatically.

A Trigger (or barrier) level is considered reached if the spot mid-price of the currency pair reaches the Trigger level

If the option exercises, the payout is 100% of the amount of the base currency. If it expires without exercising, the payout is zero (0).

Touch Options may also be closed prior to expiration (before hitting the trigger price), giving you the opportunity to re-evaluate the exposure should your opinion on the market change over time.

All Touch Options that have not reached the trigger level by 10:00am Eastern Standard Time (New York Time) on the expiry day will expire.​

In the case of an option’s expiry, the trade is either removed from the open positions view or / and opposite position with price 100% is inserted.

Please watch the FX Touch Options introduction clip about general trading strategies.

Premium

At Saxo Bank FX Touch Options can be either bought or sold.

Trading Long

(buying)​

When buying an option, you have to pay the full Premium in cash. The Premium is subtracted from the Cash Balance (initially shown as 'Transactions not booked'. At the end of the day it is subtracted from the Cash Balance).

The current value (positive) of the bought position is displayed in 'Non-margin positions' and subtracted from 'Not available as margin collateral'. Thus, you cannot use the value of Touch Options for margin collateral.​

Trading Short

(selling)​

When selling an option, you need to have the cash sufficient for the potential payout in the event of an exercise (One Touch) or expiry (No Touch).The Premium is added to the Cash Balance (initially shown as 'Transactions not booked'. At the end of the day it is added to the Cash balance).

The current value (negative) of the sold position is displayed in 'Non-margin positions'. In order to reserve the full potential payout the difference between the current value and the potential payout is subtracted from 'Not available as margin collateral'. Hence, your full potential loss from the option payout is thus not available for margin collateral.​

 

Settlement and payout

At Saxo Bank Touch Option positions are cash settled automatically when they generate a Payout. The Payout is 100% of the base currency. If the Option expires without exercising, then the Payout is 0%.

For a One Touch, settlement and payout occurs once the trigger level is reached; for a No Touch it is at maturity, assuming the trigger level has not been reached. A trigger level is considered to have been reached if the mid-price of the spot reaches the trigger level.

Although P/L from a closed Touch Option (e.g. buying and selling an Option before it exercises/expires) will be available for use in margin trading other products, final settlement is done at the end of day (EOD), in the same way as Vanilla Options are settled.

Any positions with a pricing and payout in a currency different from the Account base currency will have the Premium and Payout converted to the account currency at the EOD rate. This conversion applies to initial positioning, squaring of existing positions and positions being triggered. This includes the conversion of realised profit and loss to the account base currency.

Netting of positions

Touch Options of the same type, expiry, and payout can net out.  No other netting of Binary Touch Options is allowed.

Updated 29th April, 2014