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Currency

What is Currency Derivatives?

As the old adage goes “don’t put all your eggs in one basket”. Diversification into various asset classes is important when it comes to investment. With the global economies getting closely interconnected through financial markets, also currency fluctuation reflecting both trade and underlying strength of the economy, currency trading has evolved to be a mature financial investment avenue for Indian investors. Exchanges offer USD, Euro, GBP and Yen (all against Rupee) to trade between 9 am to 5 pm.

Cross currency pairs like EURUSD, USDJPY, GBPUSD are also set to be launched Shorty on the Indian currency bourses.

Why Currency Derivatives?

Launched in 2008, currency derivative market has steadily grown in volume and serves as platform for both hedging and speculation. Currency derivative is the way that resident investors explore this exciting world of foreign exchange.

What makes this proposition interesting? Like in equity derivatives, currencies too are cash settled (no delivery) on a daily basis. This makes it.

  • less expensive
  • highly liquid in the near-term at least
  • for a margin maintained with the broker, investors can leverage their position based on risk appetite
  • no counterparty default risk (settled through clearing houses)
  • low taxation
  • highly regulated market
  • Organizations with exposure to foreign exchange (through exports or imports) but do not enjoy facilities with banks to hedge the same, future exchanges provide a platform to hedge underlying risks

New to GEPL

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.

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
USDINR USD 1000
EURINR EUR 1000
GBPINR GBP 1000
JPYINR JPY 100,000
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’.

CURRENCY

Currency is the world’s largest market. Daily currency fluctuations define the dynamics & strength of economies around the world. Currency derivative market has steadily grown in volume and serves as 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.

Benefits of Currencies

  1. Highly liquidThe daily trading of currencies in the near-term makes Currencies a highly liquid investment.
  2. HedgingYou can hedge potential losses and protect your foreign exchange through appropriate actions.
  3. Low Volatility (Least Risk)The forex markets provide the least volatile markets across all asset classes. As such the avenue corresponds to the least loss potential even on high turnovers.
  4. Capital AppreciationYou can easily profit if the value of your currency rises against another currency.
  5. Low Margin and High LeverageFor a margin maintained with the broker, investors can leverage their position based on risk appetite.
  6. No Default RiskThere is no counter-party default risk as it is settled through clearing houses.
  7. Easy tradeCurrency can be traded online, making it easier to trade from anywhere, anytime.

Why invest with us?

Our experienced personnel advise you on strategies and timing of currency investments. We at GEPL 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 currency derivative strategy on a periodic basis, based on our research. We have an excellent track record.

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Help for our existing customers

We understand how important it is to keep an eye on your money – that’s why we make it easy for you to manage and track your investments. Plus, you’ll find answers to your questions and useful information about our products in our support centre.