Forex Options Margin Policy

Vanilla Options Margin Policy

Forex Options

While the exposure is rather straightforwardly given as the notional amount on an FX spot or forward position, this is not the case with FX options. You will not be able to just use the notional amount on a complicated option strategy.

On many types of option strategies (the ones with unlimited risk), the FX Expiry Margin (which is the FX Options margin model) uses the margin rate on the underlying currency pair to calculate the margin requirement. So which margin rate should now be used for the margin calculation of this particular currency pair, when we do not have a single fixed margin rate considering it now depends on the level of exposure? The answer to this question is the blended margin rate based on the highest potential exposure across your FX and FX option positions in the currency pair

FX Expiry Margin Calculation

The margin requirement on FX Options is calculated per currency pair ensuring alignment with the concept of tiered margins and per maturity date. In each currency pair, there is an upper limitation to the margin requirement that is the highest potential exposure across the FX Options and FX positions multiplied by the prevailing spot margin requirement. This calculation also takes into account potential netting between FX Options and FX spot and forward positions.

On limited risk strategies, e.g. a short call spread, the margin requirement on an FX Options portfolio is calculated as the maximum future loss.

On unlimited risk strategies, e.g. naked short options, the margin requirement is calculated as the notional amount multiplied by the prevailing spot margin requirement.

Tiered margin rates are applicable to the FX Options margin calculation when the margin requirement is driven by the prevailing spot margin requirement – and not the maximum future loss. The prevailing spot margin levels are tiered based on USD notional amounts, the higher the notional amount potentially the higher the margin rate. The tiered margin requirement is calculated per currency pair. In the FX Options margin calculation, the prevailing spot margin requirement in each currency pair is the tiered margin rate determined on the basis of the highest potential exposure across the FX Options and FX positions.

For specific explanation and detailed FXO examples, please click here.

View FX Margin Policy here. 

Touch Options

Though Touch Options are not margin products, positions will affect the amount you have 'Available for Margin Trading' as seen in your Account Summary.

Therefore, if margin positions are held on the account, the 'Margin Utilisation' will increase when adding Touch Option positions.

Note that before opening the position a pre-check will be done to ensure that you cannot accidentally open a Touch Option position that will move the Margin Utilisation above 100%.

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