Dawn of a new paradigm: fx options on Metatrader!
These days we discovered something that wasn’t too visible in the trading world by the time of it’s launch: in December 2014, the technology firm, ORE, has launched an MT4 solution that allows brokers to offer vanilla options under the hood of MT4.
Several years ago, in 2009, when we started the MQLmagazine project, we envisioned that this event to happen in the following months. However, it took 5 more years and it happened now. Finally, traders can step out of the enclosed world of underlying trading and add options in, to allow unlinear results…
Take a stop loss, for instance. Once it happens, it happens. It stops your trade, and that’s it. While a simple long Call would create a safety-net, multiple-use type of stop loss.
Admittedly, vanilla options are not too attractive. Have neither the hype of binary options nor the usability of multiple strike touch options, for instance.
In fact, it’s very hard to tell someone to use vanilla options. Vanillas are the Symbian of the derivatives world. While exotics are sort of Android, exotics are largely unavailable to the public. Where they are, they are distorted, convoluted, and extremely expensive, as the establishment left them largely unregulated on the aspects that matter – their features and their pricing.
Established option world brokers (those that offer stock options) have created a certain type of approach towards option strategies. For those that are not knowing it, coming from the automated trading world, it’s something like this: you start with an assumption, you pick the strategy – given also your degree of knowledge – and then the system trades it for you – basically places the trades in and waits for expiry.
So there is no automated trading style of “when this happens, trade that”. It’s just a mechanical, push-button vending machine. You couldn’t tell the system to enter a trade when the historical volatility touches a level, or when the implied volatility touches a level, or how to install or remove legs from the strategy. It may allow limit orders, but that’s just it. Automation was never pushed far enough – it was, but for hedge funds & investment banks – so that the game doesn’t get any better for the average Joe.
And this is where Metatrader comes in. There are not too many strikes and expiries available. But it gives this simplicity, of writing a complex strategy and have it managed, handsfree, until expiry. You can actually when you go in, when you hedge it, when you remove hedges, when you go out, when to close remainder trades. And this might be just the needed push to achieve the elusive trading edge. Finally, dynamic hedging: adapting your hedge to the market. We don’t necessarily mean option hedging by options: options spreads can be still very high. But the underlying, fx pair spreads are totally usable for hedging dynamically some static option strategies! This way, a static strategy can be converted on the fly in something else – and pocket the underlying profits while doing it, or have underlying losses hedged until expiry!
Now that options are available, it opens an entire field of research for us. We will be developing products for option trading, as well as customized solutions. This is a brand new field and we’re welcoming your suggestions and orders for option trading products!