Features : Optimising Options: new developments in currency derivative platforms

First Published in e-Forex Magazine April 2009

Frances Maguire

The recent volatility has put FX options trading firmly in the limelight. The technology to price and trade these instruments electronically is available, but whether the appetite is there for the automation of the more exotic structures remains to be seem. Frances Maguire investigates.

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Now, more than ever, FX options seem poised for unprecedented growth. The timing of the more risk-adverse market conditions, coupled with the fallout from the economic slowdown, has meant that both institutional and retail traders are turning to options strategies for greater control over market swings and risk.

At the same time, technological developments in the past few years have meant that there are now more sophisticated pricing and trading techniques available electronically. The fact that options trading in other asset classes has witnessed year on year growth bodes well for the trading of options in the world's largest market.

James Friedman, COO at FX Bridge Technologies, believes that recent volatility in the currency markets has brought into sharp relief the critical need to offer FX option products to retail traders. He says: "As it stands now, most retail trades have one form of risk management in their spot trading accounts: stop and limit orders. FX options answer a growing demand from retail traders for more trading and risk management strategies."

Furthermore, he adds, fund managers routinely employ the use of long and short puts and calls in conjunction with spot positions to build trading strategies that optimise their positions in light of their perception of future price movements.