How to trade in currencies in India?

by Pankhudi Dave Head Finance Manager
The currency market in India is a vibrant market that trades in a range of foreign currencies. No currency is traded in isolation, it is always traded as a pair. To put it simply, USD/INR means the value of USD in Indian Rupees which means USD and INR is traded as a pair. Similarly, there are other pairs USD/GBP, EUR/GBP etc. Some of the commonly traded currencies in the currency market are US Dollars, British Pound, Euro, Japanese Yen, Canadian Dollar, Australian Dollar, UAE Dirham, Swiss Franc etc. These currencies are freely traded all over the world. These commonly traded currencies are traded in the currency market in India through a linked system of brokers, banks, financial institutions, stock exchanges, hedgers, arbitrageurs. Currency futures in two currencies of which neither is the Indian Rupee are called cross currency futures.

There are currency derivatives available to trade on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Mainly, these derivatives are futures and currency options. Futures and options are standardized contracts that are traded on the stock exchange. Futures are contracts that put an obligation on the parties to buy or sell the particular asset on the date of settlement. So, in case of currencies, the parties are obligated to transfer foreign currency on the date at the pre-decided price.

However, the traders do not need to hold the currency futures till they expire. In case the currency future is held till expiry, then the traders need to deliver the currency by purchasing it from the spot market at present market prices.

On the other hand, it is possible to square off the open position by taking a contrary position for the future of the same expiry. For example, if a trader agrees to buy EUR 3 months after, then he can square it off by selling the same quantity of EUR in a contract expiring in 3 months. The buy and sell orders cancel each other out and the net difference is credited to the trader’s margin account.

They are also margin trades. It is important to understand what is margin account. In case of currency trades, the trader does not have to put up the entire trade value in the trading account. He can put up a small fraction and still make trades multiples above the margin amount.

The trader needs to keep a margin or some balance in the trading account that can be used as leverage. The margin amount depends on the broker. Some brokers may have a higher margin requirement. While trading in currency futures in India, be sure to use a margin calculator to find out the margin requirements.

Futures contracts generally have 3 expiry dates. The futures contract can either expire in one month, in two months or in three months. Even though futures are traded on the stock exchange, the currency market works for 24 hours as prices change depending on global factors. The prices for currency futures can be found on stock exchange websites or through the trading account.

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About Pankhudi Dave Freshman   Head Finance Manager

9 connections, 0 recommendations, 46 honor points.
Joined APSense since, July 2nd, 2019, From Mumbai, India.

Created on Jan 27th 2020 04:06. Viewed 580 times.


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