Discussion on choosing OTC or exchange traded fx options

P

Pluralsight

I would be interested in trading foreign exchange options. For options that are listed on an exchange it seems there are only 2 solutions: Either options on futures, or as I've seen the Philadelphia stock exchange has them listed: http://www.nasdaqtrader.com/Micro.aspx?id=FXOptions

It seems intersting since I could even trade in sizes of 10k instead of 100k. I definitely have to say though, this website seems to me a bit sketchy, and they are definitely trying to convince you to start trading with them. Does anyone have any experience trading options on the Philadelphia stock exchange?

OTC Options: The other solution is OTC. This might be riskier. I know that Saxo Bank do this, but isn't it correct they you are trading against them when you buy/sell an option? What if you are consistently profitable then? Does anyone know of other brokers that could be quite safe in trading OTC fx options?
 
minmike said:
Saxo bank isn't going to care if you are profitable. Stay on exchange if you can.
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I would prefer exchange as well. But I would like to start with smaller risk first (10k instead of 100k), so I want to avoid futures options if possible. It would help if there was someone that had tried the Philadelphia stock exchange, or perhaps another exchange (I think EUREX trades them too).
 
If you want to trade FX options, your choices are really
(a) OTC, which in most cases requires an ISDA with a few exceptions
(b) Futures options, which are quite liquid and have very reasonable parameters
(c) Options on various currency/basket ETFs
(d) Various hacks like equity exchange-listed FX options etc

I listed them in order which an average buy-side trader/PM would look at it. That's where liquidity is and also, it gives you the most diversity in terms of underlying and structures.
 
sle said:
If you want to trade FX options, your choices are really
(a) OTC, which in most cases requires an ISDA with a few exceptions
(b) Futures options, which are quite liquid and have very reasonable parameters
(c) Options on various currency/basket ETFs
(d) Various hacks like equity exchange-listed FX options etc

I listed them in order which an average buy-side trader/PM would look at it. That's where liquidity is and also, it gives you the most diversity in terms of underlying and structures.
More...


Is it right that (a) requires a huge amount of capital? What are these exceptions? For point (c), do you know which are the most liquid currency ETF's?
 
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