Futures For You by Carley Garner
Is there a strategic advantage to trading currency options in the futures markets as opposed to foreign exchange?
The options traded in forex are vastly more diverse than the instruments traded in the futures markets or even stocks, for that matter. The primary difference between forex options and options written on currency futures is the fact that forex traders arenít necessarily trading standardized contracts. Instead, they can negotiate specific terms with their broker such as expiration date and perhaps even the time of day. However, for simplicityís sake, brokerage trading platforms often provide traders with a default expiration date and time.
Because forex options are not standardized and can be individually negotiated, they are not traded on a formal exchange. Instead, forex option trades are executed on a synthetic market created by the brokerage firm you are trading with. Simply put, the house is taking the other side of client transactions and acting as the market makers. Obviously, this eliminates the benefits of an exchange such as tight regulations, transparency, and exchange guarantees (no counterparty risk).