Overview
The option provides the buyer with the right, but not the obligation, to buy or sell a specific amount of underlying object, at a specified rate (the exercise price), during a specified period. The buyer needs to pay a premium to the seller, and the seller is obliged to exercise the option.
The Foreign Exchange Option Trading gives the buyer the right to buy or sell an agreed amount of foreign exchange at the agreed price on the expiration date or any agreed date.
Features
Options are one of the most active financial derivatives in the international capital market due to its high flexibility and customizability. Compared with standard derivatives, such as futures, options are far more flexible and enable customers to determine the amount, term, expiration date and exercise price of the options based on their needs. By paying a premium, the option buyer hedges against risks in the cost or returns of future exposures without commitment for transaction. The seller receives the premium to reduce costs, but it is also possible that the premium received may not cover the loss caused by exercise of the option.
Procedures
1. The customer signs the Master Agreement on Foreign Exchange Wealth Management with ABC and puts forward a request for option trading.
2. ABC offers a solution and a quotation for option trading.
3. The customer accepts the solution and submits to ABC the Letter of Authorization for Foreign Exchange Wealth Management.
4. When the transaction is closed, ABC and the customer sign the Customer Transaction Confirmation.
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