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Product features
A binary currency option (BCO) is a derivative financial instrument in which the buyer receives a fixed amount at maturity if a specific condition is met—the exchange rate reaches or does not reach a certain barrier.
The barrier can be of two types:
- If the barrier is reached during the option term (one touch) – the buyer receives the fixed amount at maturity.
- If the barrier is not reached (no touch) – the option does not pay out.
Two-barrier options are also possible, where the option is activated or deactivated depending on the movement of the price within a predefined range.
The value of the premium of Binary FX Options depends on the following factors
- Spot rate of the FX pair of the option: The biggest influence on the value of the option is the spot rate of the FX pair and the volatility of the exchange rate.
- Type and level of barrier(s) (one touch, no touch): The clients of the bank can also make profit if by the maturity of the option one touch barrier is reached or no-touch barrier is not reached.
- Interest rates on each of the currencies in the FX pair: In cases when the client wants to make a profit, he/she can buy an option at a certain premium (price) and sell it back at a higher premium.
- The volatility of the FX pair exchange rate: Based on their expectations about the FX rate and the volatility, the clients of the bank can use Binary FX Options to realize income from trading them.
- The time to the maturity of the option: Ability for the customer to fix a maximum amount of negative result when buying Binary FX Options, i.e. to lose the entire invested amount.
Target market of the product
Binary FX Option is a financial instrument, which the Bank manufactures and distributes as a product. As of 2 July 2018, the European Securities and Markets Authority (ESMA) introduced a prohibition on the marketing, distribution or sale of binary options to retail investors. The table below sets out the criteria for determining for which client profile the product is compatible with or not.
| Positive | Negative | |
| Type of clients | Professional and eligible counterparties | - |
| Clients’ knowledge and experience | - Regarding the FX markets, functioning and factors affecting movements - The movement and potential expectations on the hedged FX pairs - The product FX option - rights, obligations, parameters affecting the value of the currency option - Hedging the currency exposure by entering FX option - The possible maturity scenarios of the currency option | Does not meet the indicated knowledge and experience requirements |
| Clients’ financial situation with a focus on the ability to bear losses | To fix a maximum amount of negative result when buying a currency option | - |
| Clients’ risk tolerance and compatibility of the risk | If the objective is hedging, the client's risk appetite will not be considered. In other cases, the client's risk appetite should be high (risk category 7 of 10) | Inclined to bear the risks of negative deviations of the respective FX pair in case the client's objective is to hedge. In cases the objective is speculation - when it is not inclined to bear the risks of negative movements of FX pairs |
| Clients’ objectives and needs | To hedge or to provide liquidity | - |
Contact dealers:
Deyan Mankovski – Head of the Treasury Sales Department– 02 80 10 862
Kalina Mays – Head of FX Department, Treasury Sales Department – 02 97 66 233
Milena Lukanova – Senior Dealer, Treasury Sales Department – 02 97 66 232
Hristo Arnaudov – Dealer, Treasury Sales Department – 02 93 91 364
Velichko Dimov – Dealer, Treasury Sales Directorate Department – 02 93 91 126
Stoyan Georgiev – Senior Dealer, Treasury Sales Department – 02 93 91 130
Hristo Sugarev – Dealer, Treasury Sales Department – 02 93 91 133
Ivelin Ivanov – Senior Dealer, Treasury Sales Department – 02 93 91 365
Martin Georgiev – Dealer, Treasury Sales Department – 02 97 66 234
