In a soft launch, AvaTrade launched AvaOptions in select regions last week. AvaOptions is a new FX Options trading platform that provides streaming prices of call and put options for major currencies along a diverse set of strike prices and dates. The platform provides users the ability to trade plain vanilla options or enter complex hedging strategies. In addition to pricing, the system also provides users options analysis which includes Delta, Gamma, Theta, and Vega measures. There is also a risk management tool which can be used to analyze potential outcomes for single and multiple positions over time, which includes the ability to add simulated positions to help with portfolio construction. The options trading platform also provides traders the ability to trade the underlying spot instrument with spreads similar to what is available with AvaTrade’s other systems. However, while FX trading is available on AvaOptions, existing clients using MT4 or Ava Trader will need to open a separate account to enable options trading.
AvaOptions is powered by technology from startup Sentry Derivatives. Co-founded by Steven Reiter, Sentry provides clients a white label trading package for firms wishing to launch FX options for their customers and includes a front end trading platform, back office and CRM integration, Risk Management solutions, and liquidity. Reiter, a twenty year veteran of Salomon Brothers and Citibank where developed and traded options products for clients for US Treasuries, MBS, Swaps, and Forex, and then was involved with the development of Citibank’s online FX options trading product, believes there is a gap in the product line of FX options. “Even for larger clients, getting access to competitive FX option pricing is limited. For retail traders, there has never been much access to the product, though from the largest retail clients there has always been great demand.”
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Seeking to provide a suitable product for retail clients, Sentry partnered with options technology provider FX Bridge. To provide an end to end solution for brokers, combined with FX Bridge’s trading platform, Sentry created back office and risk management solutions along with a liquidity offering. Reiter explained “More than just a trading platform, we wanted to make the experience easy for brokers to white label, and for traders to use.”
In contrast to binaries which provide a fixed payout, the linear profit/loss of vanilla options is often a harder sell to retail clients. Specifically in the retail forex world, where many clients arrive at brokers with expectations of being able to access a quick and easy to profit, educating traders has a steep learning curve. Addressing this situation, Reiter stated that “feedback from brokers is that there is a lot of demand for FX options and they are searching for solutions. Options are great for income generation, hedging, and trading, and have long been popular with retail equity investors.” As such, Reiter believes that there is enough interest from existing retail forex traders to create enough demand for brokers that launch FX options. Additionally, Reiter explained that his firm is working on creating partnerships with Options websites who would become IB’s of Sentry’s broker clients.
Overall, FX options have been a hot area of trading in 2013. At the CME, exchange traded FX options have achieved records in both trading volumes and open interest. Elsewhere, Bloomberg added both standard and ‘off the run’ FX option capabilities for its FXGO platform, while GFI has rebranded its options platform to meet Dodd-Frank rules. As such, with innovation and tighter spreads hitting the FX options market over the past two years, it has set up a solid foundation for interest among retail traders.