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The high level of risk, unique trading opportunity, and increased volatility behind exotic pairs pushes most retail traders the opposite way; however, when traded by experienced traders within season, the trading of exotic pairs offers the potential for high returns. The high volatility of these pairs is due to the pairing of a strong major ...
It consists of adjusting the Black–Scholes theoretical value (BSTV) by the cost of a portfolio which hedges three main risks associated to the volatility of the option: the Vega, the Vanna and the Volga. The Vanna is the sensitivity of the Vega with respect to a change in the spot FX rate:
Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote ...
Pairs trading or pair trading is a long-short, ideally market-neutral strategy enabling traders to profit from transient discrepancies in relative value of close substitutes. Unlike in the case of classic arbitrage, in case of pairs trading, the law of one price cannot guarantee convergence of prices. This is especially true when the strategy ...
Central banks can buy or sell foreign currency to influence exchange rates directly. For example, if a currency is depreciating, a central bank can sell its reserves in foreign currency to buy its own currency, creating demand and helping to stabilize its value. High levels of reserves instill confidence among investors and traders.
In the United States, the Commodity Futures Trading Commission (CFTC) limited leverage available to retail forex traders to 50:1 on major currency pairs and 20:1 for all others. [2] Major currencies include the Australian dollar, the British pound, the Canadian dollar, the Danish Krone, the euro, the Japanese yen, the New Zealand dollar, the ...
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