Transparency, flexibility and liquidity - redefining standards in electronic FX options
pending orders, e.g. limiting the potential loss (stop loss), or orders connected to purchasing currency, predetermined by maximum limit, which are realised only when the price reaches a particular price level, defined by the customer.
“It is very important especially because transactions can be realised on a platform almost 24 hours a day, five days a week. Tis is a key feature for institutional clients. An inability to carry out foreign exchange transactions, after the standard working hours of Polish banks, greatly reduces the effectiveness of hedging strategies they use and exposes companies to additional risks associated with price volatility,” Potaczała says.
Mariusz Potaczała “An inability to carry out foreign exchange
transactions, after the standard working hours of Polish banks, greatly reduces the effectiveness of hedging strategies they use and exposes companies to additional risks associated with price volatility,”
On TMS Direct, forward transactions are made on the basis of the so-called deposits, which, depending on the currency pair, typically range between 0.5% -2% of the nominal value of the transaction. Te main advantage of this is that the possible loss of capital on the specific instruments is limited only to the amount of funds paid into an account. Potaczała says: “If these measures are insufficient to cover the required deposit, the transactions are automatically closed. Tis gives clients a sense of security, even when dynamic changes in the market occur, because the moment of closing our positions is known in advance.”
TMS Direct also offers attractive trading terms. Spreads on the Polish currency pairs, in standard trading hours, are as around 30 pips, much less than the quotations offered by the majority of Polish banks, where spreads are about 100 pips. Potaczała says: “Maintaining such low transaction costs is possible by accounting exchange rate differences of transactions, without physical delivery of currency.”
In addition to standard transactions of buying / selling currencies, customers can also use various types of
Te Polish broker has recently added a new application, Options Board, to the TMS Direct platform, enabling users to compare prices and sensitivity of instruments, depending on the type of option, strike price and expiration date. Te application also enables traders to find an option with defined Greek ratio, as well as to compare the relation between strike and option premium very quickly. Moreover it can be used for advanced speculative strategies which consist of several types of options. Based on this it is possible to determine strategy rations such as: delta, gamma, theta and vega in advance, and modify them according to preferences.
Says Potaczała: “Terefore companies which hedge currency risk transactions can take advantage of this application both to find the option that will best suit their needs, including time, cost and break even point, and create so-called synthetic option with delta-hedge strategy. Having in mind the above, the application becomes a very useful tool in speculative, as well as in foreign exchange risk hedging transactions.”
Conclusion
2012 promises to be a pivotal year in the evolution of electronic FX option trading platforms in both the Institutional and Retail FX markets with many commentators predicting significant growth in the use of these instruments.
As always technology will have a key role to play in shaping demand which is neatly summarised by Zohar Hod who says, “Te real time aspects of trading FX options, the ability to execute on a multi-dealer platform, the ability to reduce operational risk and enhance the work-flow electronically and finally the delivery of these platforms over a cloud is where I see the future going and where I see the changes in the market coming.”
january 2012 e-FOREX | 53
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