FX Options
FX Options Frequently Asked Questions
What are the advantages of exchange-listed options?
With exchange-listed options, investors get full price transparency. Displayed prices and quote sizes are always actionable and counterparty credit risk is almost entirely eliminated, since FX Options (like all options) are issued and cleared through the Options Clearing Corporation (OCC).
Why trade FX Options versus the Spot FX?
The Spot market is generally used for very short-term investing with high leverage, while FX options allow you to implement your forecast for months ahead, with limited risk. Many investors use both products as part of their overall investment objectives in the currency markets.
Where can I trade these products?
FX Options can be traded through your GAIN Securities’ options-enabled brokerage account. New account holders can complete an online options application which is available from the New Account Opening Confirmation Page. If you are an existing customers, you can find the Options Application at our Document Center. Please be sure to complete both an Options Agreement and a Margin Agreement before submitting.
Where can I get quotes for FX Options?
Full quotes are available on our website by clicking RESEARCH, then OPTION CHAINS and entering in the proper symbol.
ISE Dollar Term Option Roots
| Currency Relationship | Option Root |
| USD/JPY (Japanese Yen) | YUK |
| USD/CAD (Canadian Dollar) | CDD |
| USD/EUR (Euro) | EUI |
| USD/GBP (British Pound) | BPX |
| USD/AUD (Australian Dollar) | AUX |
| USD/CHF (Swiss Franc) | SFC |
ISE Foreign Currency Terms Option Roots
| Currency Relationship | Option Root |
| EURUSD | EUU |
| GBPUSD | GBP |
| AUDUSD | AUM |
| NZDUSD | NDO |
NASDAQ Foreign Currency Terms Option Roots
| Currency Relationship | Option Root |
| USD/JPY | XDN |
| CAD/USD | XDC |
| EUR/USD | XDE |
| GBP/USD | XDB |
| AUD/USD | XDA |
| CHF/USD | XDS |
In addition to several resources here on GAIN Securities to get you started, you can get subscriptions to timely Trade Alerts and live and archived webinar series through our web site.
What is the benefit of cash settlement and how does it work?
Cash settlement eliminates the need to hold the actual foreign currency, making the process much more straightforward. Investors can actually trade out of their positions until expiration Friday, which is the third Friday of the expiration month at 12:00 PM (New York Time). Following are some examples:
a. Long options: If the option is in-the-money at expiration, the investor receives cash (holder’s position)
Example: 100 call, currency pair value closes at 104, the investor receives 104-100 or $4 *100 or $400 per contract
Example: 100 put, currency pair value closes at 96, the investor receives 100-96= of $4 *100 or $400 per contract
If the option is out-of-the-money at expiration the investor receives nothing
(holder’s position)
b. Short options: If the option is in-the-money at expiration the investor pays cash (writer’s position)
(See above)
If the option is out-of-the-money at expiration, the option expires worthless.
What options strategies can I implement for FX Options?
Investors can adopt the same trading strategies they use for equity options, as well as sophisticated spread functionality such as vertical spreads, straddles, strangles, condors and butterflies. Please visit our Options Strategies page hosted by the International Securities Exchange (ISE).
Is there a readily available place where I can view the “Greeks”?
Yes, you can see “Greeks” including “Delta”, “Theta” and “Gamma” on our Option Chains and in your positions page under “Option View”.
What impacts a FX Options currency pair movement?
Currency markets are impacted by many macro-economic factors, including interest rates, GDP, productivity levels and investment flows.
How do I make my price forecast for FX Options?
This is a personal choice for every investor. Some employ fundamental analysis, while others look to technical analysis (charts) such as Fibonacci, Candle Sticks or Moving Averages. Some investors use a mixture of both fundamental and technical analysis. Whatever method you use, GAIN Securities has access to research ,trading tools and investment ideas to provide top notch insight into the FX Option Markets.
I understand that FX Options are "Exercised" on a European Style basis, but can they be bought and sold prior to expiration in order to lock-in a profit or cut a loss like equity options?
Yes. FX Options can be traded throughout the trading day and do not need to be held until expiration. Since they are European Style, (meaning they cannot be exercised until expiration), investors that are short an option don’t have to worry about early exercise risks such as being assigned to deliver or receive the underlying currency.
Regardless, if you are long or short FX options in your account, you can change your mind and trade out of that position at any time during market hours.
Do FX options increase or decrease in value by a given percentage multiple prior to the expiration date? If so, what is this percentage and does this cost correlate with the spot price per pip?
No, each option is going to have differing “Deltas”, based on the strike price and time frame selected. In Options, risk is quantified in the “Greeks”, the most widely followed of which, is the “Delta”, which measures the amount the option should change based on the underlying change in value - one unit (1 FX value point). The other Greeks (Gamma, Theta, Rho and Vega) also apply to FX Options in a much the same fashion that they apply to equity options.
Is it true that the FX Option increments-per-point is equal to a dollar and that one contract is approximately equal to one Mini-Lot in the retail FX Spot market?
FXOptions are options based on the exchange rate itself. They do not carry an exact notional value, but it can be calculated by multiplying 100 x pair value. For example, if USD/YEN (YUK) is trading at 100, just take 100 (premium multiplier) x $100 = $10,000.
How would you describe the "Correlation Coefficient Ratio" between Currency Pair options and the Spot Cash market? Does one normally tend to lead the other market?
The correlation is extremely high, since FX Options are mimicking the spot prices on a real-time basis. Underlying Rate = rate x rate modifier.
For some examples, see the table below
| Convention | Rate Modifier | Example |
| USD/AUD | 100 | 108.52 (1.0852 x 100) |
| USD/GBP | 100 | 50.82 (0.5082 x 100) |
| USD/CAD | 100 | 101.49 (1.0149 x 100) |
| USD/EUR | 100 | 67.50 (0.6750 x 100) |
| USD/CHF | 100 | 108.46 (1.0846 x 100) |
| USD/JPY | 1 | 106.90 (106.90 x 1) |
Which strike price should I buy, given a certain view on currency pair?
Since options provide for any number of strategic approaches to any situation, investors need to find a balance of risk and reward that is suitable for them. ITM (in-the-money) call or put options cost more, but are the most responsive to the underlying exchange rate (Delta), while OTM (out of-the-money) options have less dollar risk but also lower deltas. This means they have the lowest responsiveness to the underlying exchange rate. ATM (At-the-money) is a hybrid of the two.
Is the shortest "Expiration Period" 1 month or is there any shorter expiration period?
The shortest expiration period is 1 month, although FX Options are available for varying months.