FOREX BROKER
FOREX OPTIONS BROKER
COMMODITY FUTURES BROKER

Forex options are rapidly emerging as an alternative investment vehicle for many traders and investors.  As always, forex options are essential to professional forex hedgers and traders.  As an investment tool, forex option trading is intended to provide clients with greater flexibility in their trading decisions.  Forex options are utilized by major banks, financial institutions, commercial and individual hedgers and speculators.  In our continuing effort to provide our foreign currency clients with state-of-the-art forex trading products and technology, CFOS/FX is proud to provide a real-time online forex option trading platform to our clients.

CFOS/FX clients have access to plain vanilla currency option trading and efficient online execution.  With one-touch order execution to buy and sell currency options, CFOS/FX clients receive streaming prices on vanilla currency options.  We broker forex options and spot forex that can be traded from the same account, including mini contracts.
 

When you start your online forex option trading experience with Ikon GM through CFOS/FX, you may realize the uniqueness of the online forex option trading platform at first sight - there are few fx option platforms comparable to the forex online option trading software offered through CFOS/FX as the IB.  As another advantage, CFOS/FX clients can cross-margin (combine the margins of) forex options positions to lower trading costs.  Please check out some of the unique online forex option trading platform features offered through CFOS/FX:

• Trade forex spot and vanilla forex options in the same account
• Flexible FX option expiration dates and times
• Cross-margining of spot and options positions*
• Writing forex options is fine, provided the positions are properly margined

*Leveraged trading can lead to potentially large losses as well as gains. Please read our Risk Disclosure for detailed information.

DEFINITION OF A FOREX OPTION

A forex option is defined as a financial contract giving the forex option buyer the right, but not the obligation, to purchase or sell a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date).  The amount the forex option buyer pays to the forex option seller for the option contract rights is called the forex option "premium."

CURRENCY OPTION BUYER

The buyer, or holder, of a currency option has the choice to either sell the currency option contract prior to expiration, or he or she can choose to hold the currency option contract until expiration and exercise his or her right to take a position in the underlying spot currency.  The act of exercising the currency option and taking the subsequent underlying position in the currency spot market is known as "assignment" or being "assigned" a spot position. 

Buying a forex option contract requires the buyer to pay an option premium to the seller.  Please note that you may be required to post a nominal margin (in addition to the premium paid) to purchase options if you are also trading spot contracts from the same account or if you may also be short-selling option positions.  However, if you will only be purchasing options to open positions (i.e. you will not be trading spot in the same account and will not be short-selling options) then the FCM can disable the nominal margin application for purchasing options, and you will no longer be required to post a nominal margin - this is only done for traders who purchase options (to open) exclusively.

On the expiration date, the call buyer can exercise his or her right to buy the underlying currency spot position at the currency option's strike price, and a put holder can exercise his or her right to sell the underlying currency spot position at the currency option's strike price.  Most currency options are not exercised by the buyer, but instead are offset in the market before expiration. 

Currency options expires worthless if, at the time the currency option expires, the strike price is "out-of-the-money."  In simplest terms, a currency option is "out-of-the-money" if the underlying currency spot price is lower than a call option's strike price, or the underlying currency spot price is higher than a put option's strike price.  Once a currency option has expired worthless, the currency option contract itself expires and neither the buyer nor the seller have any further obligation to the other party.

CURRENCY OPTION SELLER

The currency option seller may also be called the "writer" or "grantor" of a currency option contract.  The seller of a currency option is contractually obligated to take the opposite underlying currency spot position if the buyer exercises his right.  In return for the premium paid by the buyer, the seller assumes the risk of taking a possible adverse position at a later point in time in the currency spot market. 

Initially, the currency option seller collects the premium paid by the currency option buyer (the buyer's funds will immediately be transferred into the seller's currency trading account).  The currency option seller must have the funds in his or her account to cover the initial margin requirement.  If the markets move in a favorable direction for the seller, the seller will not have to post any more funds for his currency options other than the initial margin requirement.  However, if the markets move in an unfavorable direction for the currency options seller, the seller may have to post additional funds to his or her currency trading account to keep the balance in the currency trading account above the maintenance margin requirement.

Just like the buyer, the currency option seller has the choice to either offset (buy back) the currency option contract in the options market prior to expiration, or the seller can choose to hold the currency option contract until expiration.  If the currency options seller holds the contract until expiration, one of two scenarios will occur: (1) the seller will take the opposite underlying currency spot position if the buyer exercises the option or (2) the seller will simply let the currency option expire worthless (keeping the entire premium) if the strike price is out-of-the-money.

Please note that "puts" and "calls" are separate currency options contracts and are NOT the opposite side of the same transaction.  For every put buyer there is a put seller, and for every call buyer there is a call seller.  The currency options buyer pays a premium to the currency options seller in every option transaction.

CALL OPTION

A call option gives the buyer the right, but not the obligation, to purchase a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date).  The amount the forex option buyer pays to the forex option seller for the forex option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate forex options contracts and are NOT the opposite side of the same transaction.  For every put buyer there is a put seller, and for every call buyer there is a call seller.  The forex options buyer pays a premium to the forex options seller in every option transaction.

PUT OPTION

A put option gives the buyer the right, but not the obligation, to sell a specific forex spot contract (the underlying) at a specific price (the strike price) on or before a specific date (the expiration date).  The amount the  forex option buyer pays to the forex option seller for the forex option contract rights is called the option "premium."

Please note that "puts" and "calls" are separate forex options contracts and are NOT the opposite side of the same transaction.  For every put buyer there is a put seller, and for every call buyer there is a call seller.  The forex options buyer pays a premium to the forex options seller in every option transaction.

INTRINSIC & EXTRINSIC VALUE

The price of an FX option is calculated into two separate parts, the intrinsic value and the extrinsic (time) value.

The intrinsic value of an FX option is defined as the difference between the strike price and the underlying FX spot contract rate (American Style Options) or the FX forward rate (European Style Options).  The intrinsic value represents the actual value of the FX option if exercised.  Please note that the intrinsic value must be zero (0) or above - if an FX option has no intrinsic value, then the FX option is simply referred to as having no (or zero) intrinsic value (the intrinsic value is never represented as a negative number).  An FX option with no intrinsic value is considered "out-of-the-money," an FX option having intrinsic value is considered "in-the-money," and an FX option with a strike price at, or very close to, the underlying FX spot rate is considered "at-the-money."

The extrinsic value of an FX option is commonly referred to as the "time" value and is defined as the value of an FX option beyond the intrinsic value.  A number of factors contribute to the calculation of the extrinsic value including, but not limited to, the volatility of the two spot currencies involved, the time left until expiration, the riskless interest rate of both currencies, the spot price of both currencies and the strike price of the FX option.  It is important to note that the extrinsic value of FX options erodes as its expiration nears.  An FX option with 60 days left to expiration will be worth more than the same FX option that has only 30 days left to expiration.  Because there is more time for the underlying FX spot price to possibly move in a favorable direction, FX options sellers demand (and FX options buyers are willing to pay) a larger premium for the extra amount of time.

VOLATILITY

Volatility is considered the most important factor when pricing forex options and it measures movements in the price of the underlying.  High volatility increases the probability that the forex option could expire in-the-money and increases the risk to the forex option seller who, in turn, can demand a larger premium.  An increase in volatility causes an increase in the price of both call and put options.

DELTA

The Delta of a forex option is defined as the change in price of a forex option relative to a change in the underlying forex spot rate.  A change in a forex option's Delta can be influenced by a change in the underlying forex spot rate, a change in volatility, a change in the riskless interest rate of the underlying spot currencies or simply by the passage of time (nearing of the expiration date).

On the forex option trading platform, the Delta is calculated in a range of zero to one (0.0 to 1.0).  Generally, the Delta of a deep out-of-the-money forex option will be closer to zero, the Delta of an at-the-money forex option will be near .5 (the probability of exercise is near 50%) and the Delta of deep in-the-money forex options will be closer to 1.0.  In simplest terms, the closer an out-of-the-money forex option's strike price is relative to the underlying spot forex rate, the higher the Delta because it is more sensitive to a change in the underlying rate.

GAMMA

Gamma measures the change of a forex option's Delta relative to a change in the underlying spot currency rate.

Gamma = Change in Delta / Change in Underlying Asset

Long option positions have positive Gamma while short option positions have negative Gamma.  A portfolio's Gamma will be the weighted sum of its option's Gammas and the resulting Gamma will be determined by the dominant options in the portfolio. In this regard, options close to the money with short time to expiry have a dominant influence on the portfolio's Gamma. The Gamma of an option increases as the option matures and decreases with volatility.

A portfolio with a positive Gamma gets longer as the market goes up and shorter as the market goes down, which is ideal. A portfolio with negative Gamma gets shorter as the market goes up and longer as the market goes down.

A portfolio with a positive Gamma is more attractive than a negative Gamma portfolio with time decay being the mitigating factor. A negative Gamma means the rate of losses increases as losses are sustained and the rate of profit falls as profits are experienced.

With Delta neutral positions, the sign of Gamma is useful.  If Gamma is negative, the portfolio profits so long as the spot rate remains stable.  If Gamma is positive, the portfolio will only profit from large movements in spot rates in either direction.

To adjust the Gamma of a portfolio a trader must buy or sell additional option contracts as the Gamma of a cash position is zero. 

RHO

Rho measures the sensitivity of an option's price to a 1 percentage point change in interest rates. 

A forex option with a positive Rho will increase in value for each percentage point increase in interest rates.

THETA

Theta is defined as the rate of decline in a forex option's value due to the passage of time.

Options are more expensive the longer the time to maturity. Hence all options will become less valuable the longer they are held. This decay of time value (Theta) will thus work in favor of short positions in options and against long positions (whether calls or puts).

Bought options have negative Thetas, sold options have positive Thetas. Generally a portfolio with a positive Theta will gain in value as time passes and nothing else changes, whereas a portfolio with a negative Theta will decay over time if nothing changes.

In general, as the expiry date comes closer the value of the option falls, all other things being equal. This is intuitively correct because there is less time in which a price movement can occur. This rate of decay tends to accelerate as the option approaches its maturity date and decelerates as the option moves out of-the-money.

Options close to the money will have more influence on the position Theta than options far from the money. This is due to an option having its maximum time value (ie. price less intrinsic value) when it is at the money. Most time decay occurs near to expiry. It is at this time that a positive Theta will be most profitable, assuming that the strategy can he kept Delta hedged. 

VEGA

Vega is defined as the change in price of a forex option relative to a 1% change in volatility. 

Vega changes when there are large price movements in the underlying asset and vega falls as the option gets closer to maturity. Vega can change even if there is no change in the price of the underlying asset, this would happen if there is a change in expected volatility. Volatility is the expected degree of fluctuation in the spot rate. The most serious losses which occur in option portfolios are often the result of jumps in volatility.  The derivative of the option price with respect to volatility is called the vega. A positive vega position will result in profits from an increase in volatility. To create a positive vega, a trader needs to dominate the portfolio with bought options, bearing in mind that the vega will be dominated by those options that are close to the money and have significant time to expiry remaining.

TRADING HOURS

The forex options market is open 24 hours a day from Sunday 4:00 pm CST through Friday 3:00 pm CST, except on scheduled holidays (hours may vary by dealer).  There may be a brief period of time during daily rollover when trading is stopped to properly rollover all open spot positions.

*Important: Due to market illiquidity, forex options are generally not available for trading on Sunday until the Australian/New Zealand/Asian markets open up for trading from 6 to 7 pm CST.  Also, due to market illiquidity, forex options are generally not available for trading on Friday after 2:30 pm once the European and Asian markets have already closed.  Trading is generally sparse around these times and bid/ask spreads may widen considerably.  Please trade accordingly.

ACCOUNT MINIMUM

The minimum account deposit is $1,000 USD 

Please note: once the FX trading account is open and funded, it is acceptable if the FX trading account balance drops below the minimum initial account size, provided the balance of the account does NOT fall below the margin level requirements. 

If you are unsure how margins work in the FX market, please click here.

CONTRACT DESCRIPTION / TRADING DETAILS

- Typically $100,000 (standard) notional contract size.  To trade mini contracts, simply highlight the default contract size and type in the notional contract value you would like to trade.

- Typical tick size (one pip) = $10 per $100,000 notional contract value for currency pairs with USD as quote currency (actual tick values will vary depending on the base and quote currency) 

- Mini contracts are only available for the most liquid currency pairs such as the EUR/USD and USD/JPY.  Currency pairs available for mini trading and the respective minimum notional contract size depends on liquidity. 

- Vanilla FX options only (buy and/or sell puts and/or calls)

- European-style expiration*

- Default expiration time is 4pm ET, but clients may use the "request for quote" feature on the Core Options platform to request 10am ET (New York cut) expiration.

- Streaming quotes for fixed expirations only

- Delta-based FX options margins (to write/sell options); and to buy you pay the option premium.  Please note that you may be required to post a nominal margin** (in addition to the premium paid) to purchase options if you are also trading spot contracts from the same account or if you may also be shorting option positions.

- Important: Please note that FCM/Dealer Customer Agreements generally provide the firm with protection/recourse in the event a forex contract is inadvertently mis-priced by the dealer and subsequently executed by a customer.  Any customer that executes a forex contract at a price that is off the market can generally expect the dealer to bust the trade and/or offer the contract at the corrected price.

- Forex option contracts may be traded online up to 12 months into the future, but mini FX option orders generally may only be placed for contracts with expiration dates within 3 or 4 months from the spot (current) month.  Market conditions may dictate the markets/tenors an FCM/Dealer may quote at any particular time, and without notice to the customer.

- To close an open option position, simply take the other side to close/offset the original position.  For example: if you initially bought 1,000,000 GBP/JPY 225.00 call expiring 5/15/07, then to close/offset the position you would simply sell 1,000,000 GBP/JPY 225.00 call expiring 5/15/07. 

- You may not open new positions for options with same-day expiration; you may only close existing option positions with same-day expiration.  Further, if you are exiting a option position on the same day it expires, you will need to exit hours, and NOT minutes, before the option expires (the "same day" starts at rollover on the previous day).

- Online orders for option contracts within a week or so of expiration should be placed via the "request for quote" feature on the Core Options platform.  Further, orders for option contracts within a few days of expiration may need to be called in directly to the dealing desk as quotes may not be available online.  *The 24-hour phone dealing desk is only available for live clients, and not demo clients. 

- Due to market conditions, certain option contracts may only be available via the "request for quote" feature on the Core Options platform or by calling in your order directly to the dealing desk.  *The 24-hour phone dealing desk is only available for live clients, and not demo clients. 

- Straddle and strangle orders may be quoted as a single price by calling in your order directly to the dealing desk, but the net bid/ask spread is generally the same as if the customer places two separate orders.  *The 24-hour phone dealing desk is only available for live clients, and not demo clients. 

- Premium received when writing naked puts or calls is not added to your usable trading equity.

**If you are trading both spot and options in this account, only the Core Options platform provides a complete snapshot of both forex spot and option P/L and account values.  Cross-margining of positions may only be reflected in the daily account statement, and not on the trading platforms. Further, if you are holding a short-term option that is within one week of expiration, the market prices for open short-term option positions (shown under the "Positions" tab on the Core Options platform) may only update periodically - the market prices may NOT be updating in real time.  Therefore, if a trader intends to trade short-term options, THE TRADER MUST HAVE THE EXPERIENCE AND ABILITY to track and theoretically price short-term options and keep track of applicable margins.  Further, since the short-term option prices may not be updating in real-time, the "Account Summary" section on the Core Options platform will not always reflect real-time account activity.  AGAIN, IF A TRADER INTENDS TO TRADE SHORT-TERM OPTIONS, THE TRADER MUST HAVE THE EXPERIENCE AND ABILITY TO TRACK AND THEORETICALLY PRICE SHORT-TERM OPTIONS AND KEEP TRACK OF APPLICABLE MARGINS.  PLEASE TRADE ACCORDINGLY.

*European-style forex options can only be exercised at expiration.  However, they can be bought, sold and offset prior to expiration as needed by the trader.  The options will not be "called out" or "assigned" if they are in the money prior to expiration because the options can only be exercised at expiration.  If a trader wants to exercise an in-the-money European-style option prior to expiration, then we suggest the trader simply close (offset) the open option position and immediately take the respective position in the underlying.  The process is all point-and-click and may be executed all within a few seconds.

FOREX OPTION CURRENCY PAIRS & TARGET DEALING SPREADS

*DUE TO CURRENT VOLATILITY IN FOREX MARKETS, FX OPTION SPREADS HAVE INCREASED AND MAY ACTUALLY BE WIDER THAN SPREADS INDICATED ON YOUR DEMO.

**Spreads may widen during volatile market conditions

- Mini contracts are only available for the most liquid currency pairs such as the EUR/USD and USD/JPY.  Currency pairs available for mini trading and the respective minimum notional contract size depends on liquidity.  To trade mini contracts, simply highlight the default contract size and type in the notional contract value you would like to trade.

- Due to market conditions, certain contracts may only be available via the "request for quote" feature on the Core Options platform or by calling in your order directly to the dealing desk.  *The 24-hour phone dealing desk is only available for live clients, and not demo clients.

FLEXIBLE FOREX OPTION EXPIRATION

All forex options are European-style expiration only.*

Default expiration time is 4pm ET, but clients may use the "request for quote" feature on the Core Options platform to request 10am ET (New York cut) expiration..  Flexible forex option expiration dates and times give CFOS/FX clients a decisive advantage when executing forex trading and forex hedging strategies.  Streaming quotes are available only for options with standard expiration dates and times.  For options with a flexible expiration date (an expiration date other than the fixed monthly expiration date), simply choose a forex option expiration date that fits your forex trading strategy, request the quote through the "request for quote" feature on the online forex option trading platform and execute the trade directly from the forex option trading platform.  For options with a flexible expiration time, simply choose a forex option expiration time that best fits your forex trading strategy, request the quote through the "request for quote" feature on the online forex option trading platform and execute your trade directly from the forex option trading platform. 

To summarize:

(1)  Streaming quotes are available only for options with standard expiration dates and times.

(2)  For options with expiration dates and/or times other than the fixed/default monthly expiration date and/or time, flash quotes (real-time tradable quotes, just not streaming) are available online using the trading platform "request for quote" feature.  The flash quotes are actual tradable quotes and can be executed immediately online within the allotted time.

*European-style forex options can only be exercised at expiration.  However, they can be bought, sold and offset prior to expiration as needed by the trader.  The options will not be "called out" or "assigned" if they are in the money prior to expiration because the options can only be exercised at expiration.  If a trader wants to exercise an in-the-money European-style option prior to expiration, then we suggest the trader simply close (offset) the open option position and immediately take the respective position in the underlying.  The process is all point-and-click and may be executed all within a few seconds.

Further:

- You may not open new positions for options with same-day expiration; you may only close existing option positions with same-day expiration.  Further, if you are exiting a option position on the same day it expires, you will need to exit hours, and NOT minutes, before the option expires (the "same day" starts at rollover on the previous day).

- Online orders for option contracts within a week of expiration should be placed via the "request for quote" feature on the Core Options platform.  Further, orders for option contracts within a few days of expiration may need to be called in directly to the dealing desk as quotes may not be available online.  *The 24-hour phone dealing desk is only available for live clients, and not demo clients.

PHONE DEALING

*The 24-hour phone dealing desk is only available for live clients, and not demo clients.

There is no addition cost to to execute a trade through a live broker.   

For phone trading procedure, please click on the following link:  Phone Etiquette

ORDER TYPES

The forex online option trading platform offered through CFOS/FX allows you the flexibility to enter a wide variety of order types including:

- Market Orders.  A market order is an order to buy or sell a specific forex option, which is to be filled immediately at the current forex option price (premium) quoted on the screen.  Please note that fills may be much better or much worse if you attempt to trade during fast, volatile markets (such as around economic report releases, etc.)

The forex online options trading platform offered through CFOS/FX offers our clients real-time streaming forex options prices with fast, easy and efficient one-touch order execution.  The market order allows the client to follow the real-time bids and offers on the screen that can be executed with a click of the mouse.  The most advantageous aspect of the market order is the ability for the trader to capture better fills.  In simplest terms, CFOS/FX clients will be offered a better price if the bid or offer improves while you are executing.  However, if your price becomes worse, the platform will warn you of the change (via an instant online requote) and confirm your desire to execute your transaction prior to providing a confirmation.

- Limit Orders.  An order to buy or sell a currency option, which is executed when the price is breached. For example, you place an order to buy 100,000 EUR/USD March 200x 1.3050 call option for a price of .0150.  The platform will automatically fill your order when the offer reaches .0150.  Limit orders can be placed to both buy and sell.

MARGINS

*CROSS-MARGINING: Spot and Options on Spot positions are cross-margined (the margins are combined to account for decreased risk exposure) in this account.

**Leveraged trading can lead to potentially large losses as well as gains. Please read our Risk Disclosure for detailed information.

***If you are trading both spot and options in this account, only the Core Options platform provides a complete snapshot of both forex spot and option P/L and account values.  Cross-margining of positions may only be reflected in the daily account statement, and not on the trading platforms.

Since each online forex trading platform offered through CFOS/FX is based on leveraged products, each transaction requires a margin deposit that ensures credit-worthiness.  Minimum allowable margin levels are set by the National Futures Association.  The actual margin levels and policies are outlined in the account opening documentation and are the decisions of each forex FCM's credit committee. 

Selling a forex option contract requires the seller to meet initial margin requirements.  Forex option margins are delta-based (using the standard 2% spot margin requirement) and are calculated as follows:

option contract size   X   option delta   X   2%   X   spot rate   =   initial forex option margin requirement

For example, if the EUR/USD is trading at 1.1705 and the respective at-the-money EUR/USD 1.1700 call has a delta of .5, the initial margin requirement would be calculated as follows:

$100,000 (contract size)   X   .5 (option delta)   X   2%   X   1.1705 (spot rate)  =   $1,170.50 (initial margin requirement)

Forex option deltas are listed alongside the streaming quotes on the forex options online trading platform.  In rare instances when market volatility is extremely high, an in-the-money option's delta may go slightly above 1.0.  As can be easily calculated, about a 2% initial margin requirement per forex option contract is the most you will be required to post.

Buying a forex option contract requires the buyer to pay an option premium to the seller.  Please note that you may be required to post a nominal margin (in addition to the premium paid) to purchase options if you are also trading spot contracts from the same account or if you may also be short-selling option positions. 

At the discretion of the forex FCMs, maintenance margin rates may be increased from time to time, especially before a weekend or holiday, to account for unexpected price volatility that can occur while the forex markets are closed.

Please also note that (1) when trading only options (no underlying spot included in the overall position), the open option positions are automatically cross-margined and shown on the Core Option platform (2) when trading both spot and options on spot in the same overall position, the spot and option margins may not show as cross-margined on the Core Option platform but, in actuality, are cross-margined in the backoffice and will be reflected in the daily account statement after rollover.  AGAIN, THE TRADER MUST HAVE THE EXPERIENCE AND ABILITY TO TRACK AND THEORETICALLY PRICE OPTIONS AND KEEP TRACK OF APPLICABLE MARGINS.  PLEASE TRADE ACCORDINGLY.

Please feel free to contact us to discuss the nature of leverage and margins to ensure your complete understanding of the leveraged nature of forex trading and/or view our forex risk disclosures.

NO ROLLOVER

Forex option transactions executed through CFOS/FX do not carry any interest rollover debits or credits to your account.

FOREX RISK DISCLOSURES

Forex option trading is not appropriate for every investor.  Please carefully read our risk disclosures page for an explanation of risks involved in forex trading, including a detailed explanation of leverage.