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.There is a row of characteristics of currency futures, which make themattractive.It is open to all market participants, individuals included.This isdifferent from the spot market, which is virtually closed to individuals - excepthigh net-worth individuals because of the size of the currency amountstraded.It is a central market, just as efficient as the cash market, andwhereas the cash market is a very decentralized market, futures trading takesplace under one roof.It eliminates the credit risk because the ChicagoMercantile Exchange Clearinghouse acts as the buyer for every seller, andvice versa.In turn, the Clearinghouse minimizes its own exposure byrequiring traders who maintain a non-profitable position to post margins equalin size to their losses.Moreover, currency futures provide several benefits for traders becausefutures are special types of forward outright contracts, corporations can usethem for hedging purposes.Although the futures and spot markets tradeclosely together, certain divergences between the two occur, generatingarbitraging opportunities.Gaps, volume, and open interest are significanttechnical analysis tools solely available in the futures market.Yet theirsignificance extrapolates to the spot market as well.Because of these benefits, currency futures trading volume has steadilyattracted a large variety of players.For traders outside the exchange, the prices are available from on-linemonitors.The most popular pages are found on Bridge, Telerate, Reuters,and Bloomberg.Telerate presents the currency futures on composite pages,while Reuters and Bloomberg display currency futures on individual pagesshows the convergence between the futures and spot prices.FOREX.On-line Manual For Successful Trading 273.4.Currency OptionsA currency option is a contract between a buyer and a seller that givesthe buyer the right, but not the obligation, to trade a specific amount ofcurrency at a predetermined price and within a predetermined period of time,regardless of the market price of the currency; and gives the seller, or writer,the obligation to deliver the currency under the predetermined terms, if andwhen the buyer wants to exercise the option.Currency options are unique trading instruments, equally fit forspeculation and hedging.Options allow for a comprehensive customization ofeach individual strategy, a quality of vital importance for the sophisticatedinvestor.More factors affect the option price relative to the prices of otherforeign currency instruments.Unlike spot or forwards, both high and lowvolatility may generate a profit in the options market.For some, options are acheaper vehicle for currency trading.For others, options mean added securityand exact stop-loss order execution.Currency options constitute the fastest-growing segment of the foreignexchange market.As of April 1998, options represented 5 percent of theforeign exchange market.(See Figure 3.1) The biggest options trading centeris the United States, followed by the United Kingdom and Japan.Optionsprices are based on, or derived from, the cash instruments.Therefore, anoption is a derivative instrument.Options are usually mentioned vis-a-visinsurance and hedging strategies.Often, however, traders havemisconceptions regarding both the difficulty and simplicity of using options.There are also misconceptions regarding the capabilities of options.In the currency markets, options are available on either cash or futures.It follows, then, that they are traded either over-the-counter (OTC) or on thecentralized futures markets.The majority of currency options, around 81 percent, are traded over-the-counter.(See Figure 3.3) The over-the-counter market is similar to thespot or swap market.Corporations may call banks and banks will trade with each other eitherdirectly or in the brokers' market.This type of dealing allows for maximumflexibility: any amount, any currency, any odd expiration date, any time.Thecurrency amounts may be even or odd.The amounts may be quoted in eitherU.S.dollars or foreign currencies.Any currency may be traded as an option, not only the ones available asfutures contracts.Therefore, traders may quote on any exotic currency, asrequired, including any cross currencies.FOREX.On-line Manual For Successful Trading 2819%81%1 2Figure 3.3.Distribution of the options trading between over-the-counter (OTC) and theorganized exchange market: 1  the share of OTC; 2  the share of organized exchanges [ Pobierz całość w formacie PDF ]