1. Are all FX trades ( RR, BF, ATM)quoted in implied vol term delta neutral trades?
  2. If trades are not delta neutral at the initiation does that mean it is speculative trading? Why/ why not?
  1. Yes, in the sense that it is assumed that the delta will be passed between participants at time of execution.
  2. Not necessarily. A non delta neutral trade may be used for speculation , or for hedging.
  • $\begingroup$ 1. Can you please explain "Delta will be passed at the time of execution"? $\endgroup$
    – Ussu
    Oct 11 '19 at 5:23
  • $\begingroup$ Well let’s say there is a ATM FX option trade where 2 banks agree to trade at a volatility of 10%. Now they have to translate it into a price. So they plug it into their Black model. However they first agree the level of the underlying spot rate and the amount of delta hedging that is required to make each delta neutral. For example 25pct delta at 1.2056 fx rate. This delta is then passed between the two participants. If they didn’t pass the delta, each would have to trade the delta in the market , which could incur slippage causing the implied vol to be different from 10%. $\endgroup$
    – dm63
    Oct 11 '19 at 10:20
  • $\begingroup$ It’s a bit confusing to refer to an ATM option with a 25 delta. $\endgroup$ Oct 12 '19 at 7:21
  • $\begingroup$ @ChrisTaylor can you also please share your views on the above questions. As usual you may have different ways of explaining this as well. Thanks. $\endgroup$
    – Ussu
    Oct 12 '19 at 7:38
  • $\begingroup$ @christaylor, good point obviously I should have used 50 delta in the example. $\endgroup$
    – dm63
    Oct 12 '19 at 12:28

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