FX Options Trading Conditions
FX Vanilla Options
Forex Vanilla Options that are 'in the money' are automatically exercised at 10:00 am EST (New York cut) on the day of expiry. By default they are converted to a spot position.
Up until one hour before exercise you may choose between receiving the spot position ('spot') or having Saxo Capital Markets automatically exit the spot position at mid-price of the spread at the time of exercise ('cash'). There is no limit to the number of times you may change the exercise method.
The 'cash' exercise method is available on both long and short positions and will always happen at mid-spread - even in volatile market conditions.
If 'spot' exercise method is chosen, the spot position is subject to the usual profit/loss if the spot price moves from the exercise price. If you already have an offsetting position at the time of exercise, the exercised position will be netted out on the following day.
The majority of orders on FX Vanilla Options are handled automatically. That is, all orders below an auto execution limit, which varies by instrument, delta and maturity, are accepted without manual intervention by the dealing desk.
The auto execution limits are displayed in the trading platforms under Forex Options Trading Conditions.
Note that auto execution limits may be changed without prior notice under volatile or illiquid markets.
Saxo Capital Markets offers European style FX Vanilla Options, that is, option will be exercised or expire only at the expiry date and cut at 10:00 Eastern Standard Time (New York cut). Positions cannot be exercised prior to maturity.
Since Saxo Capital Markets always quotes both bid/offer prices, you are always able to close your position before maturity at the current market price. The long and short positions will then be netted out prior to expiry.
FX Touch Options
FX Touch Options are available on live streaming bid and ask prices. Spreads vary depending on maturity and the currency pair.
The pricing displayed on your trading platforms is dynamic bid/ask spreads, quoted as a percentage of the potential payout, reflecting the market's expectation of the probability that the spot rate will reach (or not reach) the trigger (or barrier) level prior to expiry.
The price of a Touch option is called the Premium and is expressed as a percentage of the potential payout. For instance, for a notional size of 1,000 and a price of 10%, the Premium will be 100 units of base currency and the Payout will be 1,000 units of base currency. For long positions you pay the premium and for short positions you receive the premium.
You are looking for a potential payout of EUR 1,000 if EURUSD touches 1.1500 within two weeks. The premium of the One Touch option is 20%.
You pay EUR 200 (EUR 1,000 x 20%) for the option.
If the EURUSD spot price touches 1.1500 before it expires you receive the pay-out of EUR 1,000 (net profit of EUR 800).
If it doesn't reach the trigger level of 1.1500 your loss on the trade is the initial premium you paid for the option (EUR 200).
There are safeguards in place to prevent erroneous trading. Thus, for each currency pair a 'tradability value' has been set. The rationale for this parameter is to restrict your trading when the probability of the trigger being touched (or not touched) is too close to 100%. This is done to protect the client from making a mistake, e.g. paying 100% for a One Touch or selling a No Touch when the bid is 0%.
The current parameters are:
|Currency cross||Tradability value
||Currency cross||Tradability value|
Please note that the tradability values are subject to change without prior notice.
You are of course never restricted from closing an existing open position, no matter what the proximity of the trigger level to current spot. Closing prices may, if close to expiry, be offered on an RFQ basis only.
You want to buy a One Touch Option with 3 months to expiry and the trigger (or barrier) price is 10 pips away from the market. In this case, the Premium would be 100% (or close to) and Saxo Capital Markets will automatically reject the trade.
The offered maturities are standardised in the Options Board covering maturities from 1 day to 6 months. The Option Trade Ticket on your trading platforms offers shorter and longer maturities, i.e. from 1 day to 1 year.
Unlike the FX Vanilla Options, Touch Options are exercised when the trigger level is reached any time prior to expiry. If the trigger level has not been reached during the live time of the option, a No Touch generates the payout, whereas the One Touch option expires automatically.
A Trigger (or barrier) level is considered reached if the spot mid-price of the currency pair reaches the Trigger level
If the option exercises, the payout is 100% of the amount of the base currency. If it expires without exercising, the payout is zero (0).
Touch Options may also be closed prior to expiration (before hitting the trigger price), so that you have an opportunity to re-evaluate the exposure should your opinion about the market changes over time.
One Touch Options will generate the payout automatically if and when triggered before the expiry time, or else (if the barrier has not been reached) automatically expire at 10 am EST (NY time) on the expiry date. No Touch Options will generate an automatic payout if the barrier has not been reached prior to 10 am EST on the expiry date, or else automatically close out if trigger is reached.
At Saxo Capital Markets, FX Touch Options can be either bought or sold.
|Trading Long (buying)
||When buying an option, you have to pay the full Premium in cash. The Premium is subtracted from the Cash Balance (initially shown as 'Transactions not booked'. At the end of the day it is subtracted from the Cash Balance).
The current value (positive) of the bought position is displayed in 'Non-margin positions' and subtracted from 'Not available as margin collateral'. Thus, you cannot use the value of Touch Options for margin collateral.
|When selling (writing) an option, you need to have the cash sufficient for the potential payout in the event of an exercise (One Touch) or expiry (No Touch).The Premium is added to the Cash Balance (initially shown as 'Transactions not booked'. At the end of the day it is added to the Cash balance).
The current value (negative) of the sold position is displayed in 'Non-margin positions'. In order to reserve the full potential payout the difference between the current value and the potential payout is subtracted from 'Not available as margin collateral'. Hence, your full potential loss from the option payout is thus not available for margin collateral.
At Saxo Capital Markets Touch Option positions are cash settled automatically when they generate a Payout. The Payout is 100% of the base currency. If the Option expires without exercising, then the Payout is 0%.
For a One Touch, that is once the trigger level is reached; for a No Touch it is at maturity, assuming the trigger level has not been reached. A trigger level is considered to have been reached if the mid-price of the spot reaches the trigger level.
Although P/L from a closed Touch Option (e.g. buying and selling an Option before it exercises/expires) will be available for use in other products margin trading, final settlement is done at the end of day (EOD), as in the way Vanilla Options are settled.
Any positions with a pricing and payout in a currency different from the Account base currency will have the Premium and Payout converted to the account currency at the EOD rate. This conversion applies to initial positioning, squaring of existing positions and positions being triggered. This includes the conversion of realized profit and loss to the account base currency.
Touch Options of same type, expiry, and payout can net out. No other netting of Touch Options is allowed.
An option is categorised as a red product as it is considered an investment product with a high complexity and a high risk.
Saxo Capital Markets is required to categorise investment products offered to retail clients depending on the product’s complexity and risk as: green, yellow or red. Please refer to our "Product Risk Categorisation".