New regulations for the FX options market in the US and Europe will see all trades being reported to a central repository, as well as being centrally cleared and executed on fully transparent trading platforms. That will bring a large part of the options market into the open for the first time. Saxo has decided to get ahead of the game by providing more public information on client activity and on prices, to encourage retail participation, a core market for the bank.
Saxo ranked 24 in this year’s Euromoney FX survey in options.
The website will display inter-bank prices for at-the-money volatility for a variety of currency pair options, as well as market pin risk and retail position ratios. Saxo also intends to roll out spot position reporting.
“Participation in the options space for us is not new,” says vom Scheidt, based in Hellerup, Denmark. “But there’s a need to differentiate ourselves. Better pricing information is key to that. Besides, if you don’t know option positionings, you’re not going to be as good a spot trader.”
The options market has seen impressive growth in recent years for Saxo. The ratio of client options volume to client spot volume continues to grow, says vom Scheidt, doubling since the bank launched its FX Options Board in 2009. Saxo is targeting turnover in options to eventually represent 10% to 15% of spot volumes.
“We want people to use options intelligently. They can offer greater leverage; when used wisely they offer good portfolio protection,” says vom Scheidt. Saxo offers as many as 40 different currency pairs, with tenors ranging from overnight to six months, and streams live prices to clients. Clients can trade out to a year using the request for quote format, says vom Scheidt.
Retail FX, like the options markets, is facing its own set of new regulations and vom Scheidt is confident that regulatory change, particularly the tightening of leverage ratios, should push savvy spot retail traders towards the options market.
“As regulators worldwide move to reduce maximum leverage ratios for the FX spot product available to retail FX traders, options, as an alternative or complementary product for expressing part of one’s view, offer more attractive comparable degrees of leverage versus direct investment in the underlying, as they always have for the professional, non-margined, market,” says vom Scheidt.