QuoteOriginally posted by: ZmeiGorynychI am with a marketmaking/prop equity options operation, and would like to find out about the specifics of trading FX options as compared to their equity counterparts. The obvious differences seem to be it's easier to short FX, and there's more liquidity and smaller spread; the smile, at least between major currencies, is not as dominated by the skew; plus there is the additional tetrahedral relationship between correlations/vols. What else is there? Can somebody recommend any books/papers/howtos on the specifics of FX options, for someone who knows about options as such?Much obliged.Ok as one who has traded both, here is my impression:Equity derivatives traders can appear very naive to FX derivatives traders in terms of their risk understanding - this is not all to say they are not smart. Rather it is a statement about how the FX ad Equity markets have developed.FX kept by and large the same old products and dissected the risk inifinitesmally - with tightest spreads you can imagine that was a need. The current model in flavour for G-11 currencies is a stochastic-local vol model, which is of course also highly limited. In many currencies, TRY for example, you often use either a hybrid-FX model, or you try to come up with intuitive corrections. Back to risk understanding: In 2004 I had arguments with equity traders telling them when/if the Equity skew could invert. But apparently it was an equity dogma that it could not. In Asia though I am now told short dated skews are no longer for the downside on some indices - exactly for the reasons I predicted. As well at least the guys Iknew vehemently denied the existence of a correlation skew - but after 1 week exposure to equities (no papers) I was convinced from simple risk arguments that it must be so. Not so until these gentlemen see papers published.FX derivatives trading is more about subtler technical understanding of risk than in equities. Equity derivatives traders come across more as structured pricers than risk traders to FX professionals. But that is due to the luxury of businesses being able to access spreads 20 times those available in FX markets. Even my (smart) junior FX trader knew about how to incorporate Dvolga/dVol 2 years ago - its an impact on the pricing of exotics. This is just a statement about how the relative markets have developed. Equities have often been led by quants, and structurers, FX quite often by risk traders. In equties, it seems there is an academic/quant community leading the way - practioners listen and follow. FX has had people who have learned doing the business.I have always felt it would be good for FX traders to spend some time in Equities to see how smartly new products are stuctured. And for Equity traders to spend time in FX to see how technical aspects of derivatives trading and risk management are understood in intuitive terms.My advice would be to forget books and papers - and put on a few positions. The best way to learn - the best pedagogical book is inside your head.