Binary FX Option

The Binary FX Option is a derivative financial instrument which, when a barrier is reached or not reached, provides a fixed amount for the option buyer.

The barrier can be of two types, depending on when the right to receive a certain amount arises for the buyer of the option at its maturity. If during the life of the option, the barrier or one of the two barriers set:

Is reached

Binary FX Option with one touch barrier
Binary FX Option with two one touch barrier

Is not reached

Binary FX Option with no touch barrier
Binary FX Option with two no touch barrier

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 Options“ 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