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Reference and executable rates

A reference rate is a published rate used to measure something. An executable rate is the rate at which you can actually buy or sell currency, from your bank, a bureau or an exchange.

BlockFinaX settles on a reference rate: the mid-market rate agreed by its oracle. Your executable rate will differ because of:

  • the bank's or broker's margin;
  • the size of your trade;
  • the time you trade;
  • in some markets, a gap between official and parallel market rates.

What this means for your protection​

Protection pays on the movement of the reference rate. If your executable rate moves by the same amount, the payout offsets your loss closely. If the two move differently, the payout will be more or less than your actual loss. This difference is called basis risk.

Reducing basis risk​

  • Match the notional to the amount you need to cover.
  • Match the tenor to the date you will buy or sell the currency.
  • Compare the reference rate shown on the pair page with the rates you are quoted, and allow for the usual gap when choosing your strike.