Forex Trading BoxOption Feature

Draw a box to define where you think the market will be

Professionals and amateurs follow price movements in the foreign currency exchange market with great interest. But trading currencies for speculative or hedging purposes requires a detailed understanding of market workings and involves significant risk.

The BoxOption^™ feature, available on OANDA fxTrade, lets you break away from the limitations and complexities traditionally associated with options trading. A simple graphical user interface makes box option trading intuitive. Everyday forex traders can buy and sell complex structured products previously only available to sophisticated institutional investors.

Benefits include:

You define the option.
Intra-day options for time periods as short as 5 minutes, as well as longer-term options (multi-week) can be defined.
The payment is calculated dynamically on-the-fly based on your definition.
Losses are limited to the purchase price of the option.

BoxOption contracts are fully integrated into the OANDA fxTrade currency trading platform. Use your cursor to draw boxes around future expected price targets or resistance or support levels, request an instant price quote from OANDA and then buy or sell the option at your discretion.

What is a BoxOption contract?

BoxOption contracts can be used for a variety of purposes. For example:

To hedge exchange rate risk
To hedge a currency position
As a medium-term speculative instrument.

What can BoxOption contracts be used for?

A BoxOption contract is a customer-defined transaction placed on the OANDA fxTrade platform. It can be defined and bought with the aim of having the price hit the box, or with the aim of having the price miss the box. In technical terms, it is an exotic cross between a binary option and a corridor option.

The following steps illustrate how the BoxOption feature works:

Customer-defined option: Draw a square "box" in an area of the price graph that lies in the future, where you believe the price will go or will not go (and define whether the price will ultimately "hit" or touch the box, or whether it will "miss" the box).
Dynamic payment calculation: Define your purchase price and the fxTrade system calculates and displays the payment in the event the BoxOption contract is successful. The payment is determined by the size and position of the box: the lower the calculated probability the box will be hit (or missed), the higher the payment.
Purchase decision: Based on the payment, you decide to invest in the BoxOption contract and click Submit.
Payment: If the BoxOption transaction is successful (meaning the price either hit/touched or missed the box depending on how you defined it), you receive the fixed payment. You receive no payout if the transaction is not successful.

Does a BoxOption contract represent a true option?

No. Each BoxOption contract represents an individual agreement between the customer and OANDA Corporation and is not standardized, and cannot be exchanged or traded independently. However, BoxOption contracts are similar to options in that their pricing (i.e., payment) is calculated based on option pricing theory, and in that the downside risk is limited to the purchase price.

How do BoxOption contracts differ from currency trading?

In theory, it is possible to enter into a position of the underlying currency pair and achieve a similar payout. However, BoxOption contracts include some distinct differences:

The maximum loss is the price of the box, whereas when trading with the underlying currency pair, the maximum loss can be much greater and would normally need to be constrained with stop-loss orders.
You can adopt a long-term position without the need for any stop-loss orders. In the case of a trend in the wrong direction followed by a trend reversal in the right direction, a position in the underlying may bail out early if the stop-loss threshold is reached.
You have higher potential investment leverage: a box costing $1 can quite typically correspond to a position in the underlying of about $1,000. Trading the underlying would therefore require significantly more capital for the same return.

Risk Disclaimer

BoxOption transactions carry a high degree of risk. If you purchase a BoxOption contract, you should familiarize yourself with its type (i.e., hit or miss), and the associated risks. If you purchase BoxOption contracts, you can terminate them early or allow them to mature. If the purchased BoxOption contract is unsuccessful upon maturity, your full investment is lost. If you opt to terminate the BoxOption contract before maturity, you may still experience a loss, up to and including a total loss of your investment. If you are contemplating purchasing deep-out-of-the-money BoxOption contracts (meaning that the box you draw encompasses prices that are significantly different from the current market price), you should be aware that the chance of such a BoxOption contract becoming profitable is remote.