Goldmans Seeks to Move the FX Options Pricing Needle

While technology has changed so much of how instruments are traded in FX, one area that has lagged in terms of innovation – in product delivery terms at least – is FX options. Although there are different look and feels on the various single dealer platforms, most can be traced back in terms of functionality to the original Fenics concept of an interactive column and spreadsheet-based for pricing.

Even a new concept such as that rolled out by Société Génerale in 2010 that used a “cube” concept to deliver pricing, which was in turn taken up by Citi, still relied upon the use of column-based pricing data.

Now though, Goldman Sachs has rolled out Visual Structuring to shift the needle on pricing of FX options. The new product is available on its Marquee single dealer platform and has been created, the bank says, in a “mobile-first way to quickly price variations, assess scenarios, run backtesting analysis, and collaborate with colleagues wherever they are”.

The bank observes that much of the historical focus of technology providers to the buy-side has been on optimising the point of execution. It adds, however, the vast majority of a trader’s time is spent during the ideation process: pricing different trade variations, assessing scenarios and backtesting to determine historical performance of a strategy, monitoring of current positions and considering restructures or hedges. “Collaboration about these ideas often involves typed up email summaries of the option structure with graphs attached,” the bank says. “The current process is very manual, time consuming, and requires significant expertise and familiarity with complex tooling.”

Instead of spreadsheets, emails and chat, we wanted to build a mobile-first analytics and collaboration platform that revolutionises the way that people think about options

Visual Structuring combines, Goldman says, the latest developments in mobile technology, cloud compute and machine learning to provide faster price discovery, detailed but intuitive scenario analysis, and seamless collaboration on trades and ideas.

Using natural language inputs, variations of a trade can be priced instantaneously using touch-screen interactions. For each of these variations, users can view graphically how their risks evolve over time and get additional context on the probabilities of outcomes or upcoming events. They can further backtest a structure with a swipe of a finger and quickly assess how it has performed in the past.

“Visual Structuring aims to create a new paradigm in options trade idea generation; a new language of derivatives trading,” says Chris Churchman, head of Marquee. “Instead of spreadsheets, emails and chat, we wanted to build a mobile-first analytics and collaboration platform that revolutionises the way that people think about options. We’re starting in FX but aiming to extend this across every asset class. Goldman Sachs is uniquely placed to offer that experience.”

Ashok Varadhan, global co-head of the global markets division at Goldman Sachs, adds, “We have always been committed to equipping our clients with the best pre-trade analytics in the industry. The Marquee Visual Structuring module does this by enabling our clients to explore and price potential payoffs by intuitively using their fingers on graphs. The ease of use and attractive aesthetics allows for enhanced comparative analytics aiding in trade construction. We are so excited to roll this out and watch it gain traction.”

The new product has received backing from Millennium Global, with Richard Benson, co-chief investment officer at the fund saying, “Amazing option tech analytics in the palm of your hand. With Visual Structuring there is no longer a need to guesstimate or use rules of thumb when that trade idea or portfolio evolution idea strikes. For a portfolio manager it is equally useful at the desk, on the train or even on the sofa! A very powerful tool utilising the best technology available to get an edge.”