Fx Option Trade Life Cycle

Fx option trade life cycle

IQ Option: FX Option LIVE Paper Trade #1 - Trade Theory

This program introduces participants to the trade lifecycle for foreign exchange trades. Participants follow the sequence of activity that occurs “behind the scenes” on trade date once an FX trade is executed through the final exchange of currencies on settlement date.

Course Objectives

By the end of the course, participants will be able to:

  • Understand how FX trades are executed among brokers, dealers, their customers and inter-dealer brokers.

    Spot.

    Fx option trade life cycle

    Options, Swaps, Futures and Forwards are included

  • Identify the critical functional areas related to moving FX trades forward to settlement, including confirmation and clearance
  • Identify services provided by CLS Clearingand SWIFT messaging
  • Distinguish types of operational risks related to FX trades that have a potential impact on the bank and its’ customers, as well as the industry as a whole
  • Examine specific post-execution processes related to FX trade lifecycle activity, including Nostro account management and reconciliation

Prerequisites: Basic knowledge of Foreign Exchange

Session 1:  Pre-Trade Preparation and Documentation

By the end of the session, participants will be able to:

  • Explain the process of customer account set-up
    • Know Your Customer (e.g., Patriot Act, Non-Disclosure Agreements)
    • Master Agreements
    • Documentation of any special arrangements (e.g., credit lines)
    • Standing Settlement Instructions
  • Discuss product set-up
    • Spot, Forwards, Options, Swaps, NDFs, NDOs

Session 2:  Order Entry and Trade Execution

By the end of the session, participants will be able to:

  • Discuss origination of customer orders
    • Media used to communicate orders
    • Verbal communication and electronic links
  • Explain Trade Execution
    • Edit and validate criteria
    • Trade amendments
    • Front-end trading and sales system
  • Identify credit monitoring

Session 3:  Confirmation

By the end of the session, participants will be able to:

  • Discuss bilateral confirmations
    • Verbal and hard-copy
    • Trade matching criteria
  • Describe affirmation of trade details
  • Identify SWIFT MT 300’s and other vendor solutions for confirmations
  • Confirm block trades and split allocations
  • Discuss exception processing
    • Unconfirmed or disputed deals

Session 4:  Netting

By the end of the session, participants will be able to:

  • Discuss netting agreements
  • Explain bilateral netting of payments
  • Confirm final netted amounts

Session 5:  Settlement

By the end of the session, participants will be able to:

  • Forecast liquidity needs
    • Realtime balance projections
    • Cut-off times
  • Discuss settlement risk and exposure
  • Explain exchange of cash on value date
    • Impact of time zone differences
    • DVP vs.

      Non-DVP settlement

  • Communicate payment instructions and expected receipts to banks
    • SWIFT messaging and other means of communication
  • Describe CLS Bank
    • Background:  why CLS?
    • Membership:  settlement members, users and third-parties
    • FX flow through CLS
    • Management of DVP risk

Session 6:  Nostro Reconciliation

By the end of the session, participants will be able to:

  • Explain Nostro account reconciliations with banks
  • Identify non-receipt of payments
  • Discuss follow-up and error resolution process
  • Recognize the impact of settlement failure
    • Media used to communicate orders

Session 7:  Accounting and Financial Control

By the end of the session, participants will be able to:

  • Calculate P&L
  • Value positions – mark-to-market

Fx option trade life cycle