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Currency Derivatives

Currency Derivatives Segment

Currency market internationally is very mature and large in terms of market share which is bigger than equity and commodity market. International currency markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers and investors.

Indian currency markets have noticed heightened activities and extreme volatilities in last couple of years. The developments taking place in the Indian Forex market have brightened the prospects for investors and traders.

What is Currency market?

Participants from all round the world who can buy, sell, exchange and speculate on differnent currencies. The international currency market comprises of Banks, Commercial Companies, Central Banks, and Investment Management firms, Hedge Funds, Retail Forex and Investors.

What is Forex Trading?

Forex is Foreign Exchange Market which is global decentralized market for trading currencies. It is a buying, selling, exchange of currencies at a determined price.

What currencies are frequently traded in the Forex market?

  • Euro/US dollars (EUR/USD) - euro
  • US dollar/Japanese yen (USD/JPY) - gopher
  • British pound/dollar (GBP/USD) – cable
  • US dollar/Swiss franc (USD/CHF) – swissie
  • Australian doller/US dollar (AUD/USD) – aussie
  • US dollar/Canadian dollar (USD/CAD) –loonie

Currency derivatives derivatives are a contract between the seller and buyer, whose value is to be derived from the underlying asset i.e. the currency value. A derivative based on currency exchange rate is an agreement that two currencies can be exchanged in a specific quantity of a particular currency pair at a future date.Currency Derivatives can be Future and Options contracts which are 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. Currency Derivatives are available on four currency pairs viz. US Dollars (USD), Euro (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY). Currency options are currently available on US Dollars.

What is an 'Exchange Traded Derivative'?

An exchange traded derivative is a financial instrument whose value is based on the value of another asset, and that trades on a regulated exchange. Futures and options are two of the most popular exchange traded derivatives. These derivatives can be used to hedge exposure or speculate on a wide range of financial assets like commodities, equities, currencies, and even interest rates.

What is currency trading?

Currency trading is the act of buying and selling international currencies for example USD-EUR or USD-YEN. Very often, banks and financial trading institutions engage in the act of currency trading. Individual investors can also engage in currency trading, attempting to benefit from variations in the exchange rate of the currencies.

How prices are determined?

Currency prices are affected by a variety of economic and political conditions, but probably the most important are interest rates, international trade, inflation, and political stability. Sometimes governments actually participate in the foreign exchange market to influence the value of their currencies. This is known as central bank intervention. Any of these factors, as well as large market orders, can cause high volatility in currency prices. However, the size and volume of the FOREX market make it impossible for any one entity to drive the market for any length of time.

Why to invest/trade in Currency?

  • Portfolio Diversification
  • Hedging (specially for importers/exporters)
  • Low margin – High leverage
  • Limited Scripts to track
  • Serves as a separate asset class for market savvy investors, arbitrageurs and speculators
  • Far from Manipulation


Symbol USDINR ($) EURINR (€) GBPINR (£) JPYINR (¥)
Market Type N N N N
Unit of trading 1 - 1 unit denotes 1000 USD. 1 - 1 unit denotes 1000 EURO. 1 - 1 unit denotes 1000 POUND STERLING. 1 - 1 unit denotes 100000 JAPANESE YEN.
Underlying / Order Quotation The exchange rate in Indian Rupees for US Dollars The exchange rate in Indian Rupees for Euro. The exchange rate in Indian Rupees for Pound Sterling. The exchange rate in Indian Rupees for 100 Japanese Yen.
Tick size 0.25 paise or INR 0.0025
Trading hours Monday to Friday - 9:00 a.m. to 5:00 p.m.
Contract trading cycle 12 month trading cycle
Last trading day Two working days prior to the last business day of the expiry month at 12:30 pm.
Final settlement day Last working day (excluding Saturdays) of the expiry month. The last working day will be the same as that for Interbank Settlements in Mumbai.
Quantity Freeze 10,001 or greater
Base price Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. Theoretical price on the 1st day of the contract. On all other days, DSP of the contract. Theoretical price on the 1st day of the contract. On all other days, DSP of the contract.
Price operating range Tenure upto 6 months +/-3 % of base price.
Tenure greater than 6 months +/- 5% of base price.
Position limits Position Limits for CDS Segment
Initial margin SPAN Based Margin
Extreme loss margin 1% of MTM value of gross open position 0.3% of MTM value of gross open position 0.5% of MTM value of gross open position 0.7% of MTM value of gross open position
Calendar spreads Rs.400 for spread of 1 month Rs.500 for spread of 2 months Rs.800 for spread of 3 months Rs.1000 for spread of 4 months and more Rs.700 for spread of 1 month Rs.1000 for spread of 2 months Rs.1500 for spread of 3 months and more Rs.1500 for spread of 1 month Rs.1800 for spread of 2 months Rs.2000 for spread of 3 months and more Rs.600 for spread of 1 month Rs.1000 for spread of 2 months Rs.1500 for spread of 3 months and more
Settlement Daily settlement : T + 1 Final settlement : T + 2
Mode of settlement Cash settled in Indian Rupees
Daily settlement price (DSP) Calculated on the basis of the last half an hour weighted average price.
Final settlement price (FSP) RBI reference rate RBI reference rate Exchange rate published by RBI in its Press Release captioned RBI reference Rate for US$ and Euro Exchange rate published by RBI in its Press Release captioned RBI reference Rate for US$ and Euro

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