Currency future and option market
The foreign exchange options market is the deepest, largest and most liquid market for options of any kind. Most trading is over the counter OTC and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange , Philadelphia Stock Exchange , or the Chicago Mercantile Exchange for options on futures contracts.
In this case the pre-agreed exchange rate , or strike price , is 2. If the rate is lower than 2. The difference between FX options and traditional options is that in the latter case the trade is to give an amount of money and receive the right to buy or sell a commodity, stock or other non-money asset.
In FX options, the asset in question is also money, denominated in another currency. For example, a call option on oil allows the investor to buy oil at a given price and date.
The investor on the other side of the trade is in effect selling a put option on the currency. To eliminate residual risk, match the foreign currency notionals, not the local currency notionals, else the foreign currencies received and delivered don't offset.
Corporations primarily use FX options to hedge uncertain future cash flows in a foreign currency. The general rule is to hedge certain foreign currency cash flows with forwards , and uncertain foreign cash flows with options. Investors are required to pay a premium for choice of exercising the Option or not. The premium is calculated based on the volatility of the underlying exchange rate. Investors, importers, exporters and travellers can use COs to hedge themselves against movements in the exchange rate.
Speculators use COs to make a profit on short-term movements in prices. Arbitrageurs use them to profit from the price differentials of similar products in different markets. Some investors also use COs to enhance the overall performance of a portfolio over the long term.
Register as a client with an authorised JSE Currency Derivatives member , deposit the required initial margin and sell or buy according to your needs.
Turn on more accessible mode. Turn off more accessible mode. A South African corporate entity, with no limits applicable.
A non-resident individual or non-resident corporate entity, with no limits applicable. A resident financial service provider and collective investment scheme, subject to their foreign portfolio allowance.