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It seems complex derivatives in particular exotic options are not available at any retail broker. Can a regular retail trader get access to these instruments? Maybe through prop firms or banks? Without having to put down $100MM+.

Every contribution is welcomed. Thank you.

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  • $\begingroup$ Actually commented on the answer not the question. It will all depend on your local regulations and what exotics you have in mind. There is a lot of stuff traded that I hope will never become available for retail investors. $\endgroup$
    – AKdemy
    Jun 23, 2021 at 19:55
  • $\begingroup$ @Dimitri Vulis Can I customize what I trade, or only trade what is already structured by Halo(or any other issuer)? E.g If I want to trade a triple barrier touch knockin option product but it is not already available at Halo(or any other issuer), can they make a market for a custom/unique payoff like my example, or must I trade only what they already have? $\endgroup$
    – user57027
    Jun 23, 2021 at 23:39

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This is not an answer but a comment which is way too long for the comments section.

What you can trade will be very much restricted by where you live. In Europe, you have Priips, which changes the game a lot - even US-ETFs are generally not easily available on most platforms (within Europe).

How much money do we actually talk about?. No need to answer this here directly, but that is the first thing that should matter for you (more on that at the very end). If it is sizeable, I think your best bet is to get in touch with some institution that focuses on (U)HNWI. Switzerland, particularly Geneva, seems to be a wonderful place for this. They will find you ways to do (almost) everything you want. It will cost you, but depending on your wealth, the doors they can open, will offset their fees (quickly). For example, Leonteq offers something very flexible. It is not for retail either, but ultimately, becoming a qualified or professional investor is not an impossible hurdle. Or having someone do this on your behalf also works.

Out of interest, what exactly is your triple barrier KI option? The only time where triple barriers make sense (to my knowledge) is with baskets. With one underlying, you could probably get some awkward sequential series but I have never seen anyone ask about something like that. If it is like a Triple Digital (payout if each underlying is above/below a certain barrier at maturity), that is illiquid, and difficult to price. Add your touch (which probably means continuous observation) and you face a real modelling challenge. Why does it matter? Well, your counterparty (if you find one) will cook up a price. If you are retail, and cannot model it, your counterparty will not be kind to you. Also, if you are wrong and the market moves entirely against you, getting rid of a product may actually turn out to be quite difficult (e.g. who is going to buy back your dual currency pivot tarf that turns out to burn money like the Great Fire of London gutted the city).

Assuming you have the knowledge and models to price these things properly, where do you get the data from? You cannot simply use some vendor like Bloomberg, Reuters etc for various reasons:

  • Firstly, you sign a so called desktop usage license with the vendor, so you cannot use it anywhere else.
  • Secondly, if your firm has a license, they will not be happy for you to use that data outside of your firm, and doing so most likely breaches the general agreement between your firm and the vendor again.
  • Thirdly, neither Bloomberg nor Reuters will provide reliable data that you would need for pricing something like a triple digital. Assume it is FX, the SLV model that Bloomberg offers is good, but it calibrates to barrier option prices (check out their white paper if you have access to Bloomberg). These prices are not available for clients. However, this model does not work for baskets anyways - so you only get LV (or if FX LVLC - local vol local correlation which is somewhat better).
  • You also cannot (per desktop agreement) use the vendor models directly to price this for personal trading.

Now, assume all this is not an issue, the more you customize, the more the counterparty will charge you (one way or another, through fees, prices etc). For example, due to practical difficulties in replicating the actual log payout across strikes, basic vanilla variance swaps trade at a basis for institutional investors. That basis will unlikely be the same for retail (and that is nothing customized, just plain vanilla VS).

Sometimes, it also helps to think outside the box. If your triple barrier for example is just a down and in basket put (WO, weighted, Rainbow, whatever) - that is a really just a reverse convertible where plenty of products (similar to the products from the RBC example in ne of the comments) are available. While you may not be able to say I want a rainbow basket on these 3 stocks, with this tenor and the down in barrier of x percent, you should at least find something reasonable close.

Last but not least, did you actually test these strategies that you have in mind somewhere? Not losing money (yet alone beating a conventional buy hold of an index) will be very very hard to say the least. The sell side does not trade stuff like this to make money with positions, they make money by offering this service and trying to hedge away directional risk. If you are sure you can do this for a profit, I would say it is probably best to demonstrate this to a (large) hedge fund, and you will soon be rewarded with bonus payments that will almost certainly dwarf your personal trading profits (unless your investable wealth is actually really high, in which case I would recommend asking someone in Geneva to find you a way to trade this).

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    $\begingroup$ Thank you for that well-explained comment. It was indeed insightful. $\endgroup$
    – user57027
    Jun 24, 2021 at 16:46
  • $\begingroup$ The sequential uidi you mentioned in the comment will almost certainly not be be possible with a structured product. Structured products are almost all yield enhancing. So you for example sell a down in put to get the proceeds. Your idea will be very cheap as the probability of theis movement occuring will be very small. The opposite of the general idea of yield enhancement. $\endgroup$
    – AKdemy
    Jun 26, 2021 at 13:41
  • $\begingroup$ So you mean there is a limitation on how I can trade barriers on structured products? $\endgroup$
    – user57027
    Jun 26, 2021 at 14:46
  • $\begingroup$ I am not sure if the system is messing up but it seems that several of your comments keep disappearing. Anyways, I think I made my points. $\endgroup$
    – AKdemy
    Jun 26, 2021 at 22:29
  • $\begingroup$ I deleted some of my comments because I did not structure my question properly because of the number of character's limitations. What I want to ask about is quite long and it is a follow-up from answers I received here. So I think it is best I create a new post, where I can state my new question more clearly. My apology for any confusion. @AKdemy $\endgroup$
    – user57027
    Jun 26, 2021 at 23:29
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Some retail investors can get exposure to many exoitic payoffs via bespoke structured notes. Take a look, for example, at https://haloinvesting.com/platform/ and https://www.simon.io/ . You don't need an ISDA agreement to buy a structured note.

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    $\begingroup$ To add to the above, some of the structured products are even listed on stock exchange and can be bought there easily because there are market makers providing liquidity. I think that most of the structured products issued by Raiffeisen are listed on a few stock exchanges such as Frankfurt, Prague, Budapest. Just google "raiffeisen structured products". $\endgroup$
    – emot
    Jun 23, 2021 at 18:17
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    $\begingroup$ @fikoyar The structured products have exocitcs embedded, some of them are basket options, some of them are barriers, some are asians etc. Look at the fact sheet: 1) rcb.at/en/pdf/certificate/… 2) rcb.at/en/pdf/certificate/… Is that not what you need? $\endgroup$
    – emot
    Jun 23, 2021 at 18:47
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    $\begingroup$ This will depend where you are (what regulation) and what exotics. Generally, I would say the less these are available the better to be honest. $\endgroup$
    – AKdemy
    Jun 23, 2021 at 19:19
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    $\begingroup$ If the notional you're looking to trade is large enough, you can try talking (via sales or platforms like Simon or Halo) to desks issuing such notes (rcb is but one) and see if they might give you a quite. A note requiring model validation or full new product approval would be MUCH less interesting to them; and USD a few hundred K would be less interesting than a few million K. Leverage (you borrow money from them and pay interest) might make it more interesting too. Still, some would probably figure out their cost, and provide a quote. $\endgroup$
    – Dimitri Vulis
    Jun 24, 2021 at 0:02
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    $\begingroup$ There's no secondary market in such notes. You buy and hold until maturty or until you decide to unwind whole or part with the issuer. However I've actually seen a few very rare situations that a client wanted to unwind an exotic note (issued by us or another bank), did not like the loss, and sold it to someone else (i.e. to another bank or to us). You generally don't need issuer's permission, but the note would be discounted by issuer's credit. Getting more than the note issuer's offer to unwind is extremely unlikely. $\endgroup$
    – Dimitri Vulis
    Jun 24, 2021 at 0:13

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