Written by Upstox Desk
6 min read | Updated on July 31, 2025, 18:25 IST
Summary:
Definition of quanto options
Distinguishing features of quanto options
Types of quanto options
3 key benefits of quanto options
Wrapping up: Key points to remember
Frequently asked questions (FAQs)
Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.
Quantity-adjusting options, or quanto options, are a type of exotic option that can help investors hedge currency risk. They are particularly suitable for cross-border investments and international diversification. In this blog, you will learn what quanto options are, how they work, and what benefits they offer.
The global market for trading assets in different currencies, called cross-currency derivatives, was worth USD 196.77 billion in March 2023 alone. Quanto options are also a popular type of cross-currency derivatives. They let you trade an asset in one currency and get paid in another currency at a fixed exchange rate. The word “quanto” means “how much” in Italian, which describes how much you can gain or lose from your trade, depending on the performance of the asset and the exchange rate. These options protect you from unexpected changes in currency values. In this blog, we will talk a lot more about quanto options, how they work, and what benefits they offer.
Quanto options, also known as quantity-adjusting options, are a type of exotic derivative. Essentially, they're a cross-currency derivative. The name "quantity-adjusting" stems from the fact that the size of the option contract adjusts according to the prevailing exchange rate at the option's expiration. To put it simply, if an underlying asset, be it a stock or commodity, is valued in one currency, the option's settlement or payout is executed in a different currency, all set at a previously agreed-upon exchange rate.
For instance, if you're in India and you're considering an investment in a US-based asset, a quanto option allows you to do just that. The unique aspect is that even though the asset is based in the US, your returns would be in rupees, and not in dollars. This setup effectively eliminates the risk of currency fluctuation and makes quanto options a popular choice for investors to gain exposure to a foreign market.
Quanto options, while sharing some similarities with standard options, have their own set of unique characteristics that set them apart. Some of them are:
Quanto options are applied to various types of underlying assets, such as stocks, indices, commodities, interest rates, or currencies. Some common types of quanto options are:
Interested in learning about widely traded vanilla options? Read about them here.
Quanto refers to a financial derivative where the asset is in one currency, but the payout is in another, all at a fixed rate.
While both deal with multiple currencies, a composite option's payoff depends on another option's value. In contrast, a quanto option's payout is in a different currency than the asset.
It's a strategy you employ to invest in foreign assets, ensuring returns in your local currency, and effectively hedging against currency fluctuations.
About Author
Upstox Desk
Upstox Desk
Team of expert writers dedicated to providing insightful and comprehensive coverage on stock markets, economic trends, commodities, business developments, and personal finance. With a passion for delivering valuable information, the team strives to keep readers informed about the latest trends and developments in the financial world.
Read more from Upstox