Bonds

The AVAOPTIONS Trading Conditions display the Typical Bid-Ask Spreads (Pips) for Instruments (Spot Spread) as well as for Options on the Instruments (Option Spread). Standard Spreads are as stated under Normal Market Conditions. Option spreads are based on 1-month at-the-money options.

Spread Cost Formula: Spread x Trade Size = Spread Charge in Secondary Currency*

*Secondary Currency is the Second Currency quoted in an FX pair (CUR1/CUR2: USD/JPY, EUR/USD, etc.)

Example

For a 10,000 EUR/USD Spot Trade, with a Spread of 2.1 pips (0.00021), the calculation is as follows:

0.00021 X 10,000 = $2.10*

AvaTrade is compensated through the Bid-Ask spread, except when otherwise stated. AvaTrade does not charge commissions on any trade.

The AVAOPTIONS Trading Platform allows traders to buy and sell options on Instruments, typically FX pairs, as shown in the Trading Conditions.

When purchasing an option, the cost of the option (also called the Option Premium) is deducted from the account cash balance, using free available cash. Free available cash is the cash balance that is in excess of the Required Margin.

When selling an option, the cash proceeds of the sale are immediately credited to the account cash balance. If writing an option (selling an option short), any required margin must be met from free available cash.

If the account does not have sufficient free available cash to meet the required margin, the trade will not be executed.

Option Premium is quoted in Price of the Second Currency.

Option Premium Formula: Price x Trade Size = Cost in Secondary Currency*

*Secondary Currency is the Second Currency quoted in an FX pair (CUR1/CUR2: USD/JPY, EUR/USD, etc.)

Example

For a 10,000 EUR/USD CALL OPTION offered at 0.00560, the calculation is as follows:

0.00560 X 10,000 = USD 56.00

If the Account Currency is not the same as the Second Currency, the Option Premium will be immediately converted into the Account Currency at the prevailing spot rate, which can be found in the Open Positions window.

AvaTrade is compensated through the Bid-Ask spread, except when otherwise stated.

AvaTrade does not charge commissions on any trade.

The AvaOptions platform calculates required margin using one of two methods, depending on the underlying instrument.

For equity index options, margin uses a simplified exchange margin model. Margin = Margin Rate x Index price x (Total Spot Quantity + Total Short Options Quantity) + Total Option Premium received.

• Example 1: Account has sold 30 US500CASH Puts at $6.00 for total premium $180 at a margin rate of 1.5%, with the index trading at 4100. Margin = 1.5% x (30 x 4100)  + 180 =  $2025.
• Example 2: Account has sold 30 US500CASH Calls at $7.50, and also has a long position in 10 US500CASH Spot, Margin = 1.5% x (40 x 4100) + 225 = $2685.

Note that the margin rate for Spot can be different than the margin rate for Options. If an account combines Spot and Options positions in the same underlying, the Spot margin rate is used for both.

For trades in other instruments such as FX and Gold and Silver, margin is set according to the riskiness of the portfolio, applying standardized stresses to each currency pair using a system known as SPAN, for Standardized Portfolio Analysis.

We divide customer portfolios by currency pair, and evaluate portfolio values for each currency pair under 16 scenarios:

Scenarios 1-14 evaluate the portfolio with volatilities higher and lower at seven spot levels. For a currency pair with a spot margin requirement of 1%, the spot levels are -1%, -.67%, -.33%, Unchanged, +.33%, +67%, and +1%.

Scenarios 15 and 16 move spot up and down by double the margin requirement (e.g. 2%), and take 35% of the observed portfolio change as risk. These scenarios are designed to capture risk of options that are further out of the money, without impacting margin for spot positions.

The greatest portfolio loss observed in these 16 scenarios is taken as margin for that currency pair. The sum of margin for each currency pair is the total Required Margin.

One may note that for a portfolio of spot positions, the margin under SPAN is equal to the Margin% times the total spot position, identical to most spot trading platforms, and neither implied volatilities nor scenarios 15 and 16 have any impact.

Each option’s implied volatility is moved up and down according to the following formula:

Vol Shift = Volatility Factor X Max( Implied Vol, Minimum Vol)

Implied Vol = the current mid-market implied volatility of the option

Minimum Vol = 10%

Table of Volatility Factors:

For example, a 2 week G10 option implied volatility is shifted +/- 22%, with a minimum move of 2.2 vol. For a 6 month option, vol is bumped +/- 9%, with minimum move of 0.9 vol.

The Volatility Factor normalizes volatility of volatility, as a 1 week option’s implied volatility can move more drastically than can that of a 1 year option. Its math is as follows:

Volatility Factor = SQRT( 30/ADTE ) * Reserve ADTE = Days to Expiration, with minimum of 7 and maximum of 90. Reserve = 15% for G10 currency pairs, and 20% for pairs including one or more emerging market currencies.

The AVAOPTIONS Trading Conditions display the Over-Night (O/N) Interest Rates Charged/Paid on a daily basis for holding a spot position or other instrument open past our End of Day time. These rates are displayed in the “Overnight Interest – Buy” and “Overnight Interest – Sell” columns. End of Day is 22:00 GMT except during Daylight Savings when it changes to 21:00 GMT.

Overnight Interest is not charged for any options positions.

You can use the following formula to calculate your Daily Overnight Interest amount using the published rates:

Trade Amount x Daily Overnight Interest = Daily Overnight Interest Charged/Paid*

*Interest Charged/Paid will be calculated in the Primary Currency; Primary Currency is the First Currency quoted in an FX pair (CUR1/CUR2: USD/JPY, EUR/USD, etc.)

Example

For a 10,000 EUR/USD Trade, with a Daily Overnight Interest Buy (or Sell) rate of -0.0053% and subject to a charge for 1 day, the calculation is as follows:

10,000 x -0.000053 = -€0.53

Note: Ava Trade platforms display overnight interest (swaps) in annualised terms.