Option vs Spot trading backtests

N

Nashequilibrium

IN spot fx, when u have an idea for a strategy, you programme it and then run simulations and stress tests to see whether it would be profitable with least variance between back tested results and actual trading results.

How do options traders do this? especially those that trade otc fx options, how do u test your strategy before risking real money?

I understand that exchanges will have historic option prices, but when u trade through a retail broker such as saxo, ig, etc, you set your own strike and time expiry.

Thanks in advance
 
Quote from Nashequilibrium:

IN spot fx, when u have an idea for a strategy, you programme it and then run simulations and stress tests to see whether it would be profitable with least variance between back tested results and actual trading results.

How do options traders do this? especially those that trade otc fx options, how do u test your strategy before risking real money?

I understand that exchanges will have historic option prices, but when u trade through a retail broker such as saxo, ig, etc, you set your own strike and time expiry.

Thanks in advance
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OTC FX options are tied up in price to FX futures not spot.
 
Quote from gkishot:

OTC FX options are tied up in price to FX futures not spot.
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Where does the calculation of implied volatility and vega come from? Is this also from futures?
 
With the help of the IB API, I use to store the bid/ask/volume/volat/etc... for all the options I use to trade in an SQL database, every 5 minutes (not less, because it's a lot of datas...), and then use these datas for backtesting.
Hum, not sure that was the answer you wanted...
 
I am pretty sure that they are actually options on futures contracts (with very wide bid/ask spread ). I suggest that you ask your broker ( in case of IG group they are actually market makers ).
 
Quote from gkishot:

I am pretty sure that they are actually options on futures contracts (with very wide bid/ask spread ). I suggest that you ask your broker ( in case of IG group they are actually market makers ).
More...

At saxo, you can choose any strike, maturity from 1day out and size. In futures is a lot more rigid than this.
 
Quote from sam028:

With the help of the IB API, I use to store the bid/ask/volume/volat/etc... for all the options I use to trade in an SQL database, every 5 minutes (not less, because it's a lot of datas...), and then use these datas for backtesting.
Hum, not sure that was the answer you wanted...
More...


Yes it does, it gives me an example of one of the ways someone is doing it. Looking at this way, how would u avoid variance creep into your backtest results. Since the futures contracts are very rigid and you cannot customize your strike price, u assuming that you would get that type of
contract, each time your model gives u a signal? I understand if you only trading vol. then you strategy will be relative to vol being at a certain point vs your estimates of it and this negates the need to have a certain option with specific strike and time, whereas for direction trading this is important.
 
Quote from Nashequilibrium:

At saxo, you can choose any strike, maturity from 1day out and size. In futures is a lot more rigid than this.
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Of course in futures it's a lot more rigid than in OTC FX. What I am saying is that I believe that they price it off the futures contracts price not spot price ( in FX they are called forward contracts ). Basically they are doing that to account for the overnight interest.
 
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