FX OPTIONS

Explore a more tailored approach to currency risk management with currency options via our partnership with ALT21, an FCA-regulated firm.

Options hedging solutions can be precisely customised to your specific needs, including balancing downside protection, upside participation, and path dependency.

Why Consider Currency Options?

There are many reasons why a business might use currency options as part of its risk management strategy
  • Protect
    Preserve your profits and manage downside risk
  • Balance
    Create a balanced portfolio to reduce realised volatility
  • Choice
    A blend of risk mitigation and market participation

What are Currency Options?

There are hundreds of variations and types of products available, but to keep it simple, let's start with the basics...
  • Vanilla Option

    The simplest type of FX option. The buyer pays an upfront premium to secure the right — without obligation — to exchange currency at a chosen rate in the future. This flexibility allows the buyer to walk away if market conditions are more favourable.
  • Multi-Leg (Structured) Options

    A combination of multiple options into a tailored solution. These strategies can enhance flexibility, reduce upfront costs, or optimise outcomes by aligning with specific market views or risk preferences.

Use Cases for FX Options

Here are four common use cases for building options into a business currency risk management program
  • Protect and Participate

    Currency Options can help to safeguard against unfavourable market shifts while retaining the ability to benefit if the exchange rate moves in your favour.
  • Remain Competitive

    Currency Options can help enable businesses to adjust prices with market movements, to remain competitive, whilst still reducing downside risk.
  • Over- or Under-Hedging

    Currency Options can add flexibility to fine-tune your hedging strategies, ensuring you’re neither overexposed nor under-protected at any time.
  • Cap Margin Call Risk

    Some strategies can limit potential mark-to-market losses and can potentially reduce exposure to unexpected or unwanted margin calls.

Risks and Potential Disadvantages

Like any financial instrument, Currency Options have various disadvantages that you should carefully consider. The below is not an exhaustive list.
  • Non-Refundable Premium

    Vanilla Options require an up-front, non-refundable premium to be paid to purchase the contract. Forward contracts by comparison do not require a premium. You may be worse off by trading an Options strategy versus a Forward Contract.
  • Less Favourable Rate

    Options strategies generally offer a less favourable hedging rate than the equivalent forward contract. This is typically in exchange for a potential benefit. You may be worse off by trading an Options strategy versus a Forward Contract.
  • Mark-to-Market Risk

    Whilst Vanilla Options do not expose the buyer to potential margin calls, other Currency Options strategies may require an up-front initial deposit (cash collateral) and will be exposed to Mark-to-Market revaluations and potential margin calls.
  • Path Dependent Outcome

    Some Options strategies include features which can benefit or disadvantage the buyer depending on the path of the spot rate over time. You may be worse off by trading an Options strategy versus a Forward Contract.

Ready To Take The Next Step?

Arrange a consultation with one of our Options experts

Risk Disclaimer:

Trading in leveraged financial derivatives such as Options carries a high level of risk and may not be suitable for everyone. Using such financial products may run the risk of substantial capital losses which may exceed your initial deposit. You should carefully consider your financial situation and needs and seek independent advice from a duly authorised financial adviser. For more information read Alt21's complex products risk warning.