In trading FX binary options on brief tenors like 1 hour, I frequently see the FX price bounce right on the expiry boundary, like hourly or 20 minute boundaries.

I would like to figure out if these bounces represent actual trades or just manipulation of the FX price by market makers submitting short spurious bids.

However I don't know where FX prices "come from" (e.g. Reuters feed, Bloomberg). Are there any visible FX exchanges where I can easily see the current bid/ask price stack of open orders for FX and see what has actually been traded versus what is just a posted offer?

Also, what is the minimum lot size of an order needed to move the Reuters feed for EUR/USD for example? I.e. if a market maker is moving the underlying price, how much risk do they take on when putting a bid in the stack?

  • $\begingroup$ I found this that I mentioned in a similar question. However, I would love to see something more open and transparent for this. Did you ever find what you were looking for? $\endgroup$ – not2qubit Dec 27 '19 at 17:09
  • $\begingroup$ I gave up on FX. Lost money at Nadex and followed that up by losing money on CantorFX, which shut down for lack of business. (Only active player on exchange was market maker offering very rich prices for binary options.) $\endgroup$ – Lars Ericson Dec 27 '19 at 22:28

The FX price bounce you see near expiration is generally because market makers are continually hedging their positions. When a market maker sells a binary option, she is left with a short gamma position. This short gamma is very high near the barrier level, especially close to expiry. The additional delta hedging or the delta hedge unwind is what causes these jumps. To answer your question, these jumps are a result of actual trades, the size of which is usually a function of how short or long the barrier/ strike the market(banks/ market makers) is.

I am not sure about Reuters, but Bloomberg aggregates quotes from multiple brokers(banks and other liquidity providers). This ladder is observable on a Bloomberg terminal. You can also customize it to show only ladders from selected counter-parties. This is especially useful when you are executing via the Bloomberg terminal. But FX being the most traded, the spreads are quite tight and ladders are quite similar across different brokers. Exchange volumes are much lower compared to the OTC volume, which drives most of the price action.

Having traded fx, a guesstimate is that you would have to trade in billions to move a currency like EURUSD by 10-15 pips.

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  • $\begingroup$ Thanks! I was feeling so bullied! I seem to recall a piece of advice to the effect that it's a bad idea to hold binaries to expiry. However the cash-out price prior to expiry is typically 77 to 88 on Cantor Exchange and I hate to leave the extra 12-23% of payout on the table. $\endgroup$ – Lars Ericson Dec 1 '17 at 3:46

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