Foreign exchange date conventions
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The Foreign exchange Options date convention is the timeframe between a currency options trade on the foreign exchange market and when the two parties will exchange the currencies to settle the option. The number of days will depend on the option agreement, the currency pair and the banking hours of the underlying currencies.
The convention helps the counterparties to understand when payments will be made for each trade. These dates can be summarised on the following timeline: The spot date is always calculated from the horizon date T. There are two possible cases:. Also, the spot date cannot fall on a US holiday for any currency pair, however foreign exchange trades can settle on this day e. Time to expiry is usually quoted either as "overnight" or in terms of a number of days, weeks, months or years.
In general, the expiry date can be any weekday, even if it is a holiday in one, or both of the currencies, except 1 January. There are differing conventions depending on the period involved. For overnight trades, the expiry date is the next week-day after the horizon date, and the delivery date is calculated from the expiry date in the same way as spot is calculated from the horizon date. This will result in an expiry fx option expiration time that is before the spot date.
For a trade with a time to expiry of v days, the expiry date is the day v days ahead of the horizon date unless it is a weekend or 1 January, in fx option expiration time case the date is rolled forward to a weekday and for a fx option expiration time with time to expiry of x weeks, the expiry date is fx option expiration time day 7x days ahead of the horizon date with the same conditions as above.
The delivery date is then calculated from the expiry date in the same way as the spot date is calculated from the horizon date. For a trade with time to expiry of y months, the expiry date is found by first calculating the spot date, then moving forward y months from the spot date to the delivery date. If the delivery date is a non-business day or a US holiday, move fx option expiration time until an acceptable delivery date is found. Finally, calculate the expiry date using an "inverse fx option expiration time operation; e.
If one leg of the currency pair is a non-deliverable currency, the expiry fx option expiration time must be a business day of that currency.
For a trade with time to expiry of z years, the expiry date is found by first calculating the spot date, then moving forward z years from the spot date to the delivery date. There are two special cases involving trades that take place around the end of the month and we are fx option expiration time in month multiples. One defines "target month" to lie x months forward from spot if time to expiry is x months; e. FX Derivatives Trader School. From Wikipedia, the free encyclopedia.
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