What Are FX Derivatives?
An Introduction
“…we sought to develop an efficient and transparent way for traders of all experience levels to tap into the limitless potential of the forex market.”
Taking on the vast foreign exchange market can be a daunting task, even for an experienced trader. With the countless strategies and methods available today, the trading process can become needlessly complex. At Valour, we want to make your journey as a trader as streamlined as possible, which is why we sought to develop an efficient and transparent way for traders of all experience levels to tap into the limitless potential of the forex market. We are proud to say we have managed to do just that with our Valour MT4 FX Derivatives trading platform.
So what are FX Derivatives? Simply put, FX Derivatives are a type of financial option which allows traders to speculate the price movements of a diverse range of stocks, indices, commodities, and currency pairs (FX). What makes FX Derivatives unique is their fixed payoff at the point of expiration. Whether your underlying asset is above the strike price by a small or large margin, your contract payoff will remain the same. When it comes to FX Derivatives trading, there are on 2 possible outcomes – whether the price of an asset goes UP or DOWN. It is this dual choice that gives FX Derivatives trading its name.
History of FX Derivatives
FX Derivatives trading today is far more flexible and accessible as compared to its early years. What was once limited only to large, institutional traders or high net worth individuals is now freely open for all. It all began in 2008, with the U.S. Securities and Exchange Commission’s approval of such options trading, which then led to the Chicago Board Options Exchange (CBOE) offering FX Derivatives for public trading.
In order to fully understand how the practice of FX Derivatives began in the first place, we have to go back to the founding years of the CBOE. When the CBOE first commenced in 1973, the regulatory framework for trading options was still in its infancy and was thus needlessly complicated. As the years went by, the practice of FX Derivatives trading was conceived, primarily as a simpler alternative for trading options.
In the developmental stages of FX Derivatives trading, the CBOE allowed only call options. Soon thereafter, put options were made available to traders. What is responsible for making FX Derivatives the popular method of trading it is today are the following two factors:
The broadening of the selection of options available to traders.
The introduction of FX Derivatives to the forex market, where its popularity grew immensely in comparison to the stock and futures trading.
FX Derivatives are used today across nearly all tradable financial assets. Valour has taken this powerful method of trading and integrated it within the Metatrader4, allowing traders, for the first time ever, to trade FX Derivatives with the MT4 platform. We understand just how powerful FX Derivatives trading can be given its flexibility, simplicity and profitability which is why we are proud to bring to the table the Valour Metatrader 4 FX Derivatives trading platform.
The advent of technology has made FX Derivatives trading more efficient than ever before, and we at Valour seek to make this technology available to you. There is simply no stopping the explosive growth potential of FX Derivatives trading, and, given how quickly it has developed over the last few short years, it is likely that the popularity of FX Derivatives trading will only increase in the future.
Timeline
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1973
Founding of the Chicago Board Options Exchange (CBOE)
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2008
Approval of FX Derivatives trading by the U.S. Securities and Exchange Commission, leading to the widespread use of FX Derivatives trading.
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Present
Valour offers traders the unprecedented ability to trade FX Derivatives within the MT4 platform.
Valour Innovation
We understand that many traders may view traditional speculative trading as something risky and overwrought with complexities. What does not help are the increasingly volatile market conditions of today and the sometimes overwhelming number of trading vehicles available. This sets up a situation where the margin for error is small, and the cost of mistakes great.
With the Valour FX Derivatives trading platform, you will not have to worry about the complexities that plague traditional speculative trading. What we offer is a simple yet powerful way for you to take on the markets, where you are able to trade on FX Derivatives within the MT4 platform. Our platform allows you to trade more simply, more securely and thus more profitably.
The Valour MT4 FX Derivatives trading platform gives traders the control they need over their investments. Never again will you have to spend countless hours surveying market spread, leverage and deposit margins. Our platform is designed to provide you with everything you need in order to make calculated decisions that will lead to positive predictions and thus profit.
“With the Valour FX Derivatives trading platform, you will not have to worry about the complexities that plague traditional speculative trading.”
“Our platform allows you to trade more simply, more securely and thus more profitably.”
An introduction to features of FX Derivatives
Fixed Returns
The basis of FX Derivatives is built upon the trading on price movements of underlying asset or financial instruments with fixed, pre-determined returns. This simplicity is what makes FX Derivatives trading so powerful. When you place a FX Derivatives is on any asset, you will know exactly how much you will make before the investment is made.
Strike Price
The strike price is determined by the price of the underlying asset at the moment at which the option is purchased. The outcome of your option at the point of expiry is determined by its current market price relative to the strike price. Any deviation between these two prices and traders are able to realise profits from the FX Derivatives contract.
Call & Put Options
After you have placed the option on your strike price, you have to make a decision: a call or a put. A call option results in a positive outcome when the price of the asset you have chosen is higher than its strike price at the point of expiration. Conversely, a put options results in a positive outcome when the price of the asset you have chosen is lower than its starting price at the point of expiration.
For example, if the current exchange rate of EUR/USD is 1.12469 and you think the rate will be higher in an hour, you place a “Call” option on EUR/USD. If your option is correct, it will result in a positive outcome.
Expiry
Another aspect of FX Derivatives trading which differentiates it from traditional speculative trading is its fixed expiration time. Once you have a decision to call or put on an option, you will choose a set expiry interval ranging from 1min to 1hr. At the point of expiry, if your asset has moved in the direction you had predicted, then your trade is in the money, meaning to say it has a positive outcome and you make profits!