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Currencies


Currency Features

Currency Futures trading will be of interest of those who wish to:

  • Invest
  • Hedge
  • Arbitrage

Market Players on a Currency Exchange:

  • Banks / MF
  • Importer
  • Exporter
  • Traders

Advantages

  • Low Transaction Charges
  • Low Brokerage
  • Fixed settlement as per RBI reference rate
  • Good Arbitrage Opportunity
  • Cost of carry is low

Factors Influencing Indian Currency Market:

  • Change in Interest Rates
  • Prices of Crude Oil
  • Inflow of Foreign Funds
  • Natural Calamities
  • Political Environment

Why Currency Futures ?

  • Trade on a regulated and efficient platform
  • Allow for transparent pricing
  • Equalise the playing field for investors
  • Allow individuals and smaller corporates to access favorable rates usually reserved for larger corporates
  • Represents a relaxation of exchange controls for individuals and corporate entities
  • Less administration for corporates
  • Indian currency exchange will soon start trading in EURO, YEN & POUND also, and the option contracts too will be launched sooner
  • Inflow of Foreign Funds

Quotation & Settlement In Currency Exchange:

  • NSE quotes all currency future prices in the same way as the underlying spot exchange rate
  • This is represented as the number of rupees per foreign currency quoted to four decimal places, e.g. INR 49.1175 to 1$
  • Last working day for each contract is two working days prior to the contract expiration date
  • Contract Expiration Date for each contract is the last working day of the month
  • All the contracts will be settled in INR

Currency Futures Product Specifications:

  • Underlying Instrument
  • Rate of exchange between one US Dollar & Indian Rupee

  • Standardized Contracts
  • Contracts open for 12 consecutive month with fixed monthly expiries

  • Rupee Denominated
  • Contracts quoted in INR per one underlying foreign currency (e.g. US Dollar) to four decimal places

  • Cash Settled
  • No physical delivery of foreign currency

  • Contract Sizes
  • 1000 foreign underlying currency e.g. $1000

How to Trade/Close a Position:

  • If an investor has a view on which direction the currency is going to move, the investor needs to contact their broker to transact on their behalf
  • To close the contract, they enter into an equal but opposite transaction
  • For example, if an investor had bought a currency future contract, the investor would close out the trade by selling the contract

Profit & Loss/ Variation Margin-Example :

  • Profit /Loss is calculated at the end of day on closing price (fair value)
  • Position holders of profitable trades receive Variation Margin
  • Position holders of loss trades pay in Variation Margin
Profit Trades Lose Trades
Buy Low-Sell High Buy High-Sell Low
Sell High-Buy Low Sell Low-Buy High

How to Roll Over a Position:

  • All investors who wish to hold their positions beyond the expiry date will be required to roll their positions over into the next expiry date
  • Investors will need to close out their positions and subsequently enter into the next contract expiry. This is usually done automatically on the investors behalf by the broker
  • Example - investors holding a June contract will need to roll their position into the September contract. If an investor had bought a June contract, the investor would have to sell the June contract and subsequently buy a September contract
  • The benefit to the investor is that the same exposure is maintained.
  • The Exchange offers discounted trade fees for all positions that are rolled over
  • World’s daily turnover is app. US $ 4.5 trillion
  • India’s daily turnover is app. US $25 bn or Rs. 1.5 Lk crore
  • Currency Future accounts for a meager Rs 2000cr.
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