Foreign exchange rates, like any other asset class move depending on various
factors, like demand supply, interest rate parity, trade and capital flows,
speculators taking positions, clients hedging risk arising from their trade and
capital flows etc. Introduction of Currency Futures will complete the suite of
instruments available for trading and hedging to the Indian resident. The
strong correlation that foreign exchange has to interest rates, equity flows
and commodities will translate to opportunities to trade currency futures
independently or in conjunction with equities, commodities like gold or oil
etc.,
Note: Hedge ratios will determine by running correlation to impact of currency appreciation.
Who Can Trade in Currency Futures?
Currency futures trading will be of interest to those who wish to:
-
Invest: Take a view on USDIND appreciating or depreciating over a specified
time frame. For e.g. if you expect oil prices to rice and impact India’s import
bill, you would buy USDINR with a view to INR depreciating. Alternately if you
believed that strong exports from the IT sector, combined with strong FII flows
will translate to INR appreciation you would sell USDINR.
-
Hedge: If you are an importer, and have USD payments to make at a future date.
You can hedge / crystallize your foreign exchange exposure by buying USDINR and
fixing your pay out rate today. You would hedge if you were of the view that
USDINR was going to depreciate.
-
Arbitrage: Trading in futures allows you to trade in interest rates implied by
the foreign exchange market. Foreign Exchange which to date has been an asset
class only banks and corporate with currency exposure were allowed to trade has
finally been made available and easily accessible to all Resident Indians. In
the context of growing integration of the Indian economy with the rest of the
world and a continuous move towards capital account liberalization, Securities
Exchange Board of India and Reserve Bank of India have permitted trading in
Currency Futures based on the USDINR exchange rate.
Opportunities
-
New Asset Class: Client can invest in USD / INR as an asset class, similar to
investment in Index in Equity market. This offers diversification
opportunities.
-
Hedging Risk: Payable and receivable can be hedged in ETP, similar to OTC
Market. Due to the superiority of ETP, clients can consider hedging through ETP
Currency derivative and make payment or realize their receivables on due date
through banking channels.
-
Directional View: Clients can take a directional call on the market,
independent of their exposure management. If INR is expected to weaken, clients
can buy USD and liquidate the contract at any time of his choice on or before
expiry. Similarly, if INR is expected to gain, clients can sell USD and square
off the contract on any day before expiry.
-
Arbitrage Trading: Clients can spot arbitrage opportunities between OTC market
and Exchange traded Currency Derivative and take a suitable buy / sell
positions in both markets.
-
Spread Trading: Clients can take a view on forward markets through spread
trading. Expansion or contraction forwards between two months will provide
opportunities for spread trading.
What is a Currency Futures Contract?
A Futures contract is a standardized exchange traded contract, to buy or sell a
certain underlying instrument at a certain date in the future, at a specified
price. In the case of a currency futures contract, the underlying instrument is
a foreign exchange rate.
What are the factors affecting Currency Futures?
Macro economic views, Monetary Policy, RBI intervention, Flow information,
Performance of other currencies, Performance of equity markets, USD sentiment,
Performance of key commodities affecting trade, Policy announcements affecting
flows – trade or capital, and related Data announcements
Through which Exchange can I trade in Currency Futures?
MCX Stock Exchange (MCX- SX) & National Stock Exchange (NSE).
How do I start trading Currency Futures?
Currency Futures can be bought and sold through Aditya Birla Money Limited on NSE & MCX-sx by opening a Currency Trading Account. You
will be required to complete the formalities which include signing of member
constituent agreement, constituent registration form and a risk disclosure
document .If you are already a client of Aditya Birla Money then existing client
codes, will be allotted for Currency Trading Also.
To begin trading, you will be required to deposit cash or collateral with
Aditya Birla Money as stipulated.
How will a Currency Futures contract finally settle?
Contract Expiration date for each contract shall be the last working day of the
month (excluding Saturdays). The Last Trading Day for each contract shall be
two working days prior to the Contract Expiration Date. The settlement will be
fixed based on the Reserve Bank of India Reference Rate at 12.00 noon on the
Last Trading Day. All Contracts will net settle in INR.
* Conditions Apply
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