The forex option brokers are broadly classified into two different groups they are
1.) The forex brokers who offer online forex option trading platforms
2.) Forex trading option by means of telephone trades that are placed through a dealing brokerage desk.
There are a few forex option brokers who offer their traders both online forex option trading and also dealing brokerage desk. This is a system which is specially designed for the investors who usually place their orders through a live forex option broker. One of the trading products options offered to the investors by a forex option broker is exotic forex option broker is the exotic forex options.
Initially, it is highly recommended that an investor recognizes the meaning of “exotic”. This term is very confusing as it has a lot of meanings. The first meaning of the word “exotic” is the currency that is not largely traded as compared to the other currencies. The second meaning to this term “exotic” which is useful in this case is a forex option trading strategy which is derived from a standard vanilla forex option strategy.
Understanding the concept of what makes a broker non-vanilla may prove to be quite helpful in understanding what makes a exotic forex option exotic. As compared to Plain vanilla forex options Exotic forex option contracts vary with respect to features like expiration structure, payout amount and payout structure. Generally it is seen that the exotic forex options broker are not very liquid because they usually cater to the needs and requirements of a specific investor.
Not much time is wasted in covering the exotic forex brokers because it only caters to the needs of institutional and commercial investors than the retail forex traders. There are a certain exotic forex options namely:
a.) Asian options: they are also known as Average price options
b.) Binary options: the pay received may be in cash or may be nothing if the strike price is not reached.
c.) Barrier options: here they are paid when they reach a certain price.
d.) Baskets: the pay received depends on one or a basket of currencies.
e.) Look back options: here the pay depends on the minimum and maximum price that is reached during the life of a contract.
f.) Compound options: options on multiple exercise dates and strikes.
g.) Chooser options, spread options, packages and so on and so forth.
As the exotic options cater to the needs of specific investors the contract types change over a period of time to suit the needs of the investors. As these exotic forex options cater to the needs of the investors all most all the exotic options business in transacted on the telephone through forex option brokers. But then, it is very simple to enter the exotic forex option contract but then it is also important to realize that liquidity might not be at its peak while you are planning to exit.