In the fx options markets, the convention is to quote delta-neutral (DN) straddles, 10-d RR, 25-d RR, 10-d BF and 25-d BF where "-d" means delta and RR and BF are risk-reversals and butterflies. That much is well-known.I have a question though about what you actually trade:If a trader actually buys, say, a 25-delta butterfly, then he is going short one call struck at the strike corresponding to the DN straddle, going short one put struck at the strike corresponding to the DN straddle, going long x calls struck at the strike corresponding to a call with delta 0.25 and going long x puts struck at the strike corresponding to a put with delta -0.25. My question is: What is x in the above?I have a feeling that x is chosen to make the entire trade exactly vega-neutral when all the vega's are worked out using the Black-Scholes vega with the vols and strikes worked out as appropriate for each vanilla leg of the butterfly.Is this correct? Another way to do it would be x = 1 so there is equal notional.Does anyone have an fx options trader sitting nearby who knows the market convention on this? I am talking about the standard market convention ie what is assumed if you trade in the brokers on this. Thanks in advance. Doug

vega neutral butterfly

Thanks very much for that, DaveAngel.As a follow-up and on a slightly different issue, does anyone know if the market conventions for EUR/USD are the same as for GBP/USD or not. I seem to recall reading somewhere that they are not ie the risk-reversals are quoted the other way round for EUR/USD ie -0.6 for EUR/USD means that calls (on EUR) with a 25 delta have a HIGHER implied vol (by 0.6%) than puts (on EUR) with a (minus) 25 delta whereas for GBP/USD a risk-reversal of -0.6 means that calls (on GBP) with a 25 delta have a LOWER implied vol (by 0.6%) than puts (on GBP) with a (minus) 25 delta. On the other hand, the fact that it is written down somewhere doesn't means its true....Does anyone know for sure? Thanks in advance. Doug

I recall that there is an excellent paper by Wystrup that explains all the quoting conventions. However, I cannot seem to be able to find it.

Maybe this one : FX Volatility Smile Construction