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Investment Analysis question: difference between currency options and currency futures options?
I know what futures and options are but the book isn't doing the greatest job of explaining it.
1 Answer
- JohnLv 67 years agoFavourite answer
From the POV of valuation there is no difference as long as you account for interest rate parity correctly. But a few differences are:
a) Currency options are OTC derivatives with counterparty risk so only institutions can trade them. Currency futures options are exchange traded so anybody can trade them.
b) The deliverable on the currency option is the currency while it is a position in a futures contract and cash in a margin account for a futures option.
c) Currency options can be as customized as you want while currency futures options are very standardized.
d) You can trade currency options on virtually any currency in the world (may have to cash settle it) but currency futures options are only available on big currencies.
