Launched in 2008, the currency derivative market has steadily grown in volume and serves as a platform for both hedging and speculation. Currency derivative is the way that resident investors explore this exciting world of foreign exchange.
Coming to the main question, why would be one be interested in trading or investing in currency futures.
One may be interested in investing in or trading currency derivatives for the following reason.
Trading: - The exchange rates keep fluctuating based on various data that is released by the government and the central banks of the country. So one might initiate a short or long position just to benefit from those small moves.
For example, If a trader thinks that the USD is going to strengthen against the INR then he/she will buy the pair. The prediction or speculation is right the pair will move higher and the trader will end up making money and vise versa.
Hedging: - A hedger takes a position in the currency derivatives to protect himself from the fluctuation in the exchange rates. These are people who either are supposed to make or receive a payment in foreign currency. It includes importers or exporters of goods and services.
For example, If an exporter has exported goods worth $1000 and will receive the payment in the next 3 months, a falling dollar is an underlying risk. Hence he can short USDINR futures to reduce the risk.
Low margin requirement: - This is one of the most motivating factors for most currency traders. The margin required for trading in currency is exceptionally low as compared to commodity and in some cases the equity.
What makes this proposition interesting? Like in equity derivatives, currencies to are cash-settled (no delivery) on a daily basis. This makes it.
Currency derivatives are exchange-traded futures and options contracts whose price movements depend on the underlying currency pair. For Ex the USDINR futures will move in tandem with the USDINR spot rates that keep changing depending on the data that is released, like the PMI, CPI, inflation, unemployment figures, etc. In currency trading and investing, currencies are considered in pairs like the Rupee-Dollar pair. So if someone has a bullish view on the Dollar he can buy the pair. Buying the pair also implies that the trader or investor is selling the rupee.
In India, the USDINR, GBPINR, EURINR, and JPYINR are the most traded currency derivatives, along with the cross-currency pairs i.e. EURUSD, GPBUSD, and USDJPY.
"Don't put all your eggs in one basket," as the old adage goes. When it comes to investment, diversification into different asset classes is significant. With financial markets closely intertwined with global economies, currency fluctuations reflecting both trade and the economy's underlying power, currency trading has grown into a mature financial investment avenue for Indian investors.
Our step by step guide will help you through understanding the basics.
Before you invest for the first time it is important to understand the basics. We’ve put together a step-by-step guide to investments that we hope will clarify some of the broader benefits and risks.
Our experienced personnel advises you on strategies and timing of currency investments. We at GEPL capital invest time in research – both macro and micro to generate accurate conclusions. Our strong and dedicated fundamental and technical teams are well poised to advise customers on currency trading/investments. We also publish a currency derivative strategy on a periodic basis, based on our research. We have an excellent track record.
Currency is the world’s largest market. Daily currency fluctuations define the dynamics & strength of economies around the world. The currency derivative market has steadily grown in volume and serves as a platform for both hedging and speculation. Currency derivative is the way that resident investors explore this exciting world of foreign exchange. Currencies are cash-settled (no delivery) on a daily basis.
Yes, same margin can be used to trade in both Equity and Currency segment.
All Currency contracts – Futures and Options on NSE are cash-settled.
In NSE for Currency Derivatives the trade timings are as follows: Trading Session- Monday to Friday- 9:00 AM to 5:00 PM Revise Timing will be: Monday to Friday- 9:00 AM to 7:30 PM
All Currency contracts expire two working days prior to the last business day of the expiry month at 12:30PM.
Following are the participants in Currency Trading: Traders-Importers/Exporters, Hedgers, Arbitrageurs, Speculators
All currency futures & options contracts on exchange are net settled in cash in Indian Rupee. The final settlement price is the RBI Reference rate for each currency pair published on the last trading day for the expiry month.
The size of each contract for different currency pairs on the exchange are as follows.
|Currency Pair||Contract Size|
|EURUSD (Cross-Currency Pair)||EUR 1000|
|GBPUSD (Cross-Currency Pair)||GBP 1000|
|USDJPY (Cross-Currency Pair)||USD 1000|
All Resident Indians as defined in section 2(v) of the Foreign Exchange Management Act, 1999 (FEMA, Act 42 of 1999) are eligible to trade in the Currency Derivatives segment. For participation by regulated entities, concurrence from respective regulators should be obtained. Currently, trading facility in Currency Derivatives at I-Sec will be offered to all Resident Individuals / HUFs / eligible Corporate fulfilling the FEMA criteria.
Currency Derivatives are Future and Options contracts which you can buy or sell specific quantity of a particular currency pair at a future date. It is similar to the Stock Futures and Options but the underlying happens to be currency pair (i.e. USDINR, EURINR, JPYINR OR GBPINR) instead of Stocks. A future contract of USDINR of expiry 27th Jan, 2016 will be represented by symbol ‘FUTCUR-USDINR-27JAN2016’. A call option contract of USDINR of expiry 27th Jan, 2016 for Strike Price ‘66’ will be represented by symbol ‘OPTCUR-USDINR-27JAN2016-66-CE’.
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