FX Options provide you with a flexible risk management solution to help protect against unfavourable fluctuations in the foreign exchange market. Whether you’re planning to make an international payment, making a major investment or settling invoices, fluctuations in currency rates can have a significant impact on your cash flow.
FX options offer protection against a range of risks associated with the foreign exchange (FX) market, including volatility and liquidity risk. They’re available to buy or sell in a range of currencies and maturities, from one day to 12 months.
Vanilla FX Options
A vanilla FX option gives the buyer the right but not an obligation to purchase or sell a specified amount of one currency in exchange for another at an agreed rate on a pre-agreed date. They’re the most basic form of FX option and can be an effective means to help manage your risk in the foreign exchange market.
Unlike forwards, options give you the right but not an obligation to benefit from any improvements in the foreign exchange market during the time period of the option, as long as the strike price is higher than the current prevailing spot rate at expiry. They’re a great way to protect your bottom line and achieve your goals in the foreign exchange market.
Strike prices are the highest value that you can buy or sell your forex call and put options at. They’re set by you to reflect your specific needs and are valid until the end of the option period, when they’re no longer in effect.
CME FX Options
CME Group is the world’s largest, all-to-all electronic venue for trading FX options, with 24 currency pairs and a wide range of expirations. Centrally cleared, CME FX options provide access to robust liquidity that is comparable to the OTC market, with trading volumes that peak at the London market close and New York market open.
The CME FX options market has undergone a transformation in recent years to align its offerings with over-the-counter (OTC) market conventions, delivering transparency, low cost trade executions and capital-efficient risk management capabilities that are quickly becoming critical to today’s increasingly regulated markets.
CME Group offers a full range of FX products, including vanilla, structured and synthetic options. Designed for market participants seeking both transparency and liquidity, CME Group options are a great alternative to the OTC FX market, as they are governed by market rules and can be traded through any clearinghouse.