Barclays Capital has made streaming FX option pricing available over the proprietary Barx trading platform, and is forecasting massive market potential for the new tool.
Barx for FX Trading offers live two-way streaming tradable prices of FX options across 17 currency pairs, out to 1 year, with auto quoting up to $125m in some currencies. It also offers the ability to price many types of exotic FX option.
The new service is aimed at corporates, hedge funds and banks and has been launched in the US and Europe, with plans to roll out to Asia in the near future. Barclays Capital also plans to add more currency pairs, raise auto quoting levels and add higher tenors.
Ivan Ritossa, managing director and head of FX at Barclays Capital says the explosion of the hedge fund industry is bringing many more participants to market. "In the global FX market, spot FX volume transacted electronically is currently around 30% of total trading volumes and we believe that electronic trading of FX options should grow to the same percentage once the technology solutions are available to clients. This would mean around $35 billion of FX options could be traded daily electronically by 2008."
According to The Bank for International Settlements (BIS), volumes in the global FX options market are up 95% in the period 2001-2004 from $41 billion to £117 billion. The proportion of overall FX business traded as FX options has also grown steadily. In 1995, options were 8.3% of the size of the spot market. This has grown to 18.8% in 2004.
Ritossa claims BarCap is the first bank to launch two-way streaming tradable prices for FX options. Other systems currently provide indicative prices or ‘request for quote’ tools, he says, which means the client can’t trade on the price instantaneously.
"The launch of streaming FX option pricing on Barx means we can provide the best liquidity possible at the best possible price. This is a real plus for our clients who look to us to provide them with quick and efficient ways to trade as well as price transparency," he adds.