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Advanced Foreign Exchange Derivatives

Learn a Thorough Overview of FX Derivatives Products, Pricing, Risk Management and Applications

Advanced Foreign Exchange Derivatives Training

A one-day course

This Advanced Foreign Exchange Derivatives course is a 'must-know' for:
  • Asset Managers
  • Junior FX traders
  • Sales
  • Middle Office
  • Risk Compliance
  • Anyone wanting to understand the FX Derivative Markets

This Advanced Foreign Exchange Derivatives course not only explains the technical pricing of FX derivatives i.e. derivatives in foreign exchange market but also their practical use. It shows examples of how Corporates, Hedge Funds, Banks and Asset Managers use these exchange traded derivatives for hedging and investing.

We look at Counterparty Risk, and how and why collateral has become a major part of the life cycle of these derivatives.

Technical issues such as the “Greeks”, the “Volatility Smile” and the Barrier options are explained in detail, but in an easy-to-understand way.

This Advanced Foreign Exchange Derivatives course looks at how foreign exchange and its derivatives are used in the real market, in a very practical manner.

  • To provide a complete understanding of the properties and risk profiles of FX derivative products.
  • To provide participants with a thorough understanding of the applications of FX derivatives so that they can advise their clients on strategies that may be used to meet specific hedging, trading and structuring requirements.
  • To provide participants with a thorough understanding of pricing techniques used in FX derivatives. This will give participants a good understanding of whether the prices quoted are fair.
  • To provide participants with a thorough understanding of the risk management processes and techniques used in FX derivatives. This will allow participants to explain risk-reward expectations to investors and users and better manage risks in their portfolios.
  • To provide participants with a thorough understanding of the trading, hedging and investment strategies and techniques used in FX derivatives. This will allow participants to match products to their market expectations and risk profiles.
  • To explain to participants how collateral management works through the processes of VaR, marking positions to market and margin management. This will give prime brokers a better understanding of the role of collateral in risk reduction. It will also allow fund managers to plan for future cash flow movements in their funds and keep liquidity requirements to a minimum.

Module 1 - A short recap of the properties and risk/reward profiles of FX derivative products?

Derivative Products

  • Futures
  • Outright Forward Contracts
  • Non-Deliverable Forwards
  • Currency Futures
  • Options
  • Conventional and foreign Currency Options
  • Carrier Options
  • Warrants
  • Swaps
  • FX Swaps
  • Foreign Currency Swaps

Exercise for Module 1

Participants will be asked to explain the properties and risk-reward profiles of a series of FX derivative products.

Module 2 - Who might use FX derivatives and why? This module investigates how the products are used by both Banks and their clients.

Derivative Products

  • Currency Futures and Outright Forwards (FX Forward Derivatives)
  • Used by corporations to hedge translation and transaction FX exposure
  • Used by traditional fund managers to hedge FX risk in portfolios and change the currency asset allocation
  • Used by macro hedge funds to speculate on the future value of the currency pairs
  • Currency Options and Barrier Options
  • Used by corporations, traditional fund managers, and hedge funds for:
  • Directional trading
  • Hedging of risk
  • Placing risk into a collar
  • Yield enhancement
  • Volatility trading
  • FX swaps
  • Used by banks and corporations for:
  • Financing mismatched loan and deposit books
  • Bank Arbitrage of FX Swaps v Money Markets
  • Exercise: Arbitraging the Money Markets
  • Currency swaps
  • Used by high-grade issuers in a bond and swap structure

Exercise for Module 2

Participants will be provided with a series of market expectations and trade criteria and be asked to choose an FX derivative product to use, giving their reasons and expected outcomes over a range of spot prices at maturity.

Module 3- How are FX derivatives priced? This module examines the pricing of the products.

Futures and Outright Forward contracts by a combination of;

  • Buying the base/pricing currency and selling the pricing/base currency
  • Financing the position with currency repo
  • Deriving the fair forward price by the maturity cash flows (interest rate parity)
  • By using swap points that are traded in the market as a product in their own right

Options using a variant of the Black-Scholes Pricing model which requires inputs for:

  • FX spot rate
  • Two sets of interest rates
  • Implied volatility
  • The Greeks

Decomposing Currency Swaps into:

  • An exchange of principal
  • Market Pricing and Conventions
  • Basis swap

Exercise for Module 3

Participants will be provided with a set of spot prices, interest rates and volatilities and will be asked to price various products. For this exercise, participants will be given a pricing model for options but will be expected to build their own pricing model for the Delta 1 products.


Module 4 - How are FX derivatives risk managed?

FX Delta 1 instruments

  • VaR


  • Delta and gamma silos for underlying FX price risk
  • Vega ladders for volatility risk
  • Rho for interest rate risk
  • Theta for the impact of time decay

Exercise for Module 4

Participants will be provided with a set of spot prices, interest rates, volatility and market expectations and will be asked to project the expected profit or loss (risk) for various products as a result of changes in market conditions. For this exercise, participants will be given a risk analytics program for options. For Delta 1 products, they will expand the model that they built in Module 3 to incorporate “what if” scenario analysis.

Module 5 - Trading Strategies. This module discusses how to choose a strategy to fit market expectations

FX delta 1 products

  • Directional strategies


  • Directional trading
  • Volatility trading
  • Spread trading
  • Income enhancement

Exercise for Module 5

Participants will be provided with a series of market expectations and trade criteria and be asked to choose a strategy to use, giving their reasons and expected outcomes over a range of spot prices at maturity.

Module 6 - The life cycle of trade and collateral management, including examples of mark-to-market. This module provides an in-depth analysis of risk and collateral management to ensure that participants understand how risk is reduced.

Trade execution

  • Request for a quote from the buy-side
  • Price construction from the sell-side

Mark to market for futures, outrights and FX swaps

  • Changes in the spot price
  • Financing cost (carry)
  • Changes in interest rates
  • Passage of time


  • Change in the spot price
  • Changes in volatility
  • Changes in interest rates
  • The passage of time

Module 6 – Trading with FX Derivatives

Exercise for Module 6 market and manage the collateral over these two marks. One of the marks will be for a profitable market movement and the other for a losing market movement. They will then close the trade out and calculate the final profit or loss and manage the closeout of the strategy and the return of the collateral.

More Complex Strategies

  • Knock In and Knock Outs
  • Risk Reversals
  • Pin risk

The trainer worked in Investment Banks, including HSBC and Bank of Montreal for nearly 20 years. During this time, he worked in Operations and then as a trader, running books in FX, bonds and derivatives.

The trainer has run courses all over the world including Amsterdam, Dublin, London, New York, Hong Kong, Singapore, Jakarta, Johannesburg, Delhi, Accra, Johannesburg etc.

The trainer delivers courses that focus on providing a practical and in-depth understanding of the markets from a Trading, Operations and Risk viewpoint. His courses are interactive and stimulating, offering delegates the opportunity to participate in an environment that encourages free discussion of the real issues faced in the workplace.

In addition to his training activities, he has undertaken various consultancy projects, such as an in-depth collateral risk assessment at a major European Investment bank.

The trainer held the position of Non-Executive Director of Cazenove’s Derivative Oversight Committee for many years. Acting as a member of the committee in a general consultative capacity to assess the firm’s derivative capabilities and risks.

The trainer has also presented at JPMorgan Forums in London, speaking on topics such as the Benefits and Risks of Derivatives. He, along with representatives from the FSA, law firms, hedge funds etc. were asked to give their views on the risks of derivatives to 150-200 Directors and senior managers from the top investment firms in the UK.

This Advanced Foreign Exchange Derivatives course has been designed to provide a thorough overview of FX derivatives products, pricing, foreign exchange risk management and applications. We will use real-life case study examples to illustrate the techniques and strategies that are used by both the “buy-side” and “sell-side”.

Participants will require laptops with MS Excel for the exercises and case studies.


Have this course presented In-House

  • On a date, time and in a location of your choice
  • Topics expanded or deleted to your bespoke requirements

Have this course pre-recorded

  • Full course recording edited exclusively for your company
  • Files converted to enable housing on your LMS

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