What is Delta One trading?

Delta One trading is a type of trading strategy that aims to closely track the price movements of an underlying asset, such as a stock, bond, commodity, or index. The term „Delta One“ refers to the derivative products used in this strategy, which have a delta value of approximately one, indicating a high correlation with the underlying asset.

In Delta One trading, the trader seeks to replicate the performance of the underlying asset by holding a portfolio of securities and derivatives that have a similar risk and return profile. The goal is to create a position that has a delta value close to one, meaning that the portfolio’s value will move in line with the price movements of the underlying asset.

Delta One trading typically involves using a combination of cash equities, futures contracts, options, and other derivatives to achieve the desired exposure. The strategy is often employed by institutional investors, such as hedge funds and investment banks, as it allows them to gain efficient exposure to a specific market or asset class.

One common application of Delta One trading is in index tracking, where the trader aims to replicate the performance of a specific index, such as the S&P 500 or the FTSE 100. By constructing a portfolio that closely mirrors the constituents and weights of the index, the trader can provide investors with a product that delivers returns similar to the index.

Overall, Delta One trading combines various financial instruments to create a position that closely tracks the price movements of an underlying asset, providing investors with exposure to a specific market or index.