Synthetic forwards can help investors reduce their risk, although investors, as in the case of futures, still face significant losses if they do not implement appropriate risk management strategies. One of the great advantages of synthetic forwards is that it is possible to maintain a «forward» position without the same requirements for counterparties. Some types of synthetic futures contracts include futures and futures that trigger futures contracts. Synthetic advances can be useful for smoothing cash flow. In a complete forward, the eventual tally is at the futures price after the expiration. Conversely, in a synthetic forward, there will likely be an initial margin and the net position will be charged daily in cash (margin of variation); If the option is properly evaluated, the potential tally should be fully covered by the reserved margin. 10 A synthetic futures contract uses call and sell options with the same strike price and the same period until expiry to create a clearing position. An investor can buy/sell a call option and sell/buy a put option with the same strike price and the same expiry date, with the intention of mimicking a regular futures contract. Synthetic futures are also known as synthetic futures. Forums – Ask ACCA Tutor-Forums – Ask the ACCA Tutor-AFM – Synthetic Exchange Agreement The end result is as if we had a futures price.
However, instead of setting a forward interest rate, the transaction itself is converted to what turns out (perhaps it is better for us, maybe it`s worse). Companies operating in multiple currencies sometimes adopt a mixed FX risk management strategy, including both futures and options. In general, a futures contract works best when a currency`s exchange rate is relatively stable, while options for more volatile currencies are better. A major European bank has assessed the benefits of using 50% futures contracts, 50% of foreign exchange options for major currencies in industrialized countries and a greater proportion of foreign exchange options for developing country currencies. It concluded that there was a cost advantage in moving a portion of the futures contracts over major currencies through an all-option strategy11. Here we use two combined options to build the synthesis contract. You always buy a put option, as you did before.