Currency

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 Trades Lose Trades
Buy Low-Sell High Buy High-Sell Low
Sell High-Buy Low Sell Low-Buy High


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
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.
Currency Rates