Foreign Exchange Markets – Intermediate

This course explore the features, characteristics and applications of the FX cass and derivative products for a wide variety of end-user cases from forwards to using option combinations to create specific trading strategies.

To conclude, we will look at the whys and wherefores of the volatility surface and what drives its shape.

Foreign exchange spot and forward products
The FX spot markets
1. Standard exchange rate notation and quotation conventions
2. Big figures and pips/points, base currency and variable currency rules
FX forward and swap markets
3. Why the need to hedge on a forward basis?
4. FX forward characteristics, forward pricing and quotations
5. Risks associated with hedging
FX swaps
6. General structure and cash flows
7. How clients use FX swaps
8. FX swaps and their role in accessing synthetic (cheap) funding
9. FX swaps and structuring synthetic high-yield assets
10. Managing residual spot FX position and its implications in pricing
Non-deliverable forwards
11. Quoting conventions and mechanics
12. Role in accessing and exploiting opportunities in emerging markets
‘Carry trades’ and why (and when) they work
13. The risks involved in carry trades
14. How to identify the carry trade opportunities

FX options
The FX options market quotations and conventions – recap
Using option combinations to create specific trading strategies
15. What are the traders’ motivations behind option combos?
Spread strategies – what are option spreads? Why trade them?
16. Spreads as risk reducing strategies
17. Executing the trade and when to closing out the spreads
18. Examples using puts and call combinations
19. Analysing the outcome and risk dynamics
Volatility strategies – what are option volatility trades?
20. Straddles – properties of the position
21. Why might a trader enter such a position?
22. Analysing the outcome and risk profile of such trades
23. Strangles – redefining the straddle strategy
24. Minimising capital outlay and potential loss

The FX Volatility Surface
What is implied volatility?
Defining the volatility surface
25. Smile and skew, and the key drivers
26. Moneyness and delta
27. The term-structure of volatilities