How Can I Trade Futures Contracts on Foreign Exchange in India?

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How Can I Trade Futures Contracts on Foreign Exchange in India?

Date: Oct 25, 2022 | Time: 09:13:00 PM | Author: Editor News

What makes the US dollar different from other currencies is its stability. Other than that, the supply and demand, the status of the economy, central bank policy and foreign exchange reserves of a country also make them a favourable currency to trade in. Because of all these reasons, more investors are seen investing in USD, rather than any other currencies in the world. Henceforth, investors in India will be holding their futures contracts on the US dollar. Apart from them, in India, currencies could be traded amongst EUR and INR, JPY and INR and GBP and INR. Also, Changes in currency value, as we have seen, influence both importers and exporters. Therefore, they will seek to safeguard against such currency risk.

Trading of currency pairs

Trading currency pair that has an exchange rate will prove to be more profitable than otherwise. Moreover, the currency futures are dependent according to the exchange rates of those two distinct currencies. The first currency in the pair is deemed as the governing currency among these twos. Since here we are discussing this in an Indian scenario, the central bank of the country, that is, the Reserve Bank of India will be selling dollars in the currency market, as the value of the Indian Rupee is lower than that of the dollar. On the other hand, due to the increasing availability of dollars relative to the rupee, their price will fall, and the dollar will weaken versus the rupee.

Exchanges of the country to do forex trading

Presently, currency futures in the country are made available in National Stock Exchange (NSE), MCX-SX, Bombay Stock Exchange (BSE) and United Stock Exchange. Meanwhile, the global foreign exchange market comprises around $5 trillion US dollars, on a daily basis.

Trading Currency Futures

Any broker can open a currency trading account for you. You will be asked to pay an initial margin, which is a percentage of the total transactions you do. For instance, if the margin is 5% and you carry out these trades totallingRs 10 lakhs, you must pay the broker Rs 50,000 in margin money. At a minimal cost, one could purchase large amounts of currency futures. If the value of the position increases the chances of profit and loss also increase.

If your choices are right, you will profit tremendously. On the other side, if you're wrong, you might lose a lot of money. Currency options are a safe investment since they provide you with the option of not executing the contract at the strike price, making them less risky. In terms of futures contracts, the NSE in India provides contract sizes of 1000 for the majority of currencies. In the case of the Japanese yen, it is one lakh. Both currencies and options are paid in cash at the end of the month. Also, no actual money would be traded.

Eligibility for trading in Currency Futures Market

The Currency Futures market is open to any Indian resident or firm, including banks and financial organisations. Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are currently not authorised to engage in India's Currency Futures market. Currency Derivatives participants can be divided into two major categories:

View-based Traders: These traders can trade based on a wide range of fundamental factors, global trends, economic and policy-related news, and technical indicators. Currency Futures enable view-based traders a reliable platform for tracking the fluctuations of the local currency (INR) against foreign currencies.

Hedgers: Due to different geopolitical concerns, foreign currency markets may have volatility, at least for the past few years. Currency risk hedging may be a useful strategy for ensuring that profits for any firm are not drained due to variations in the currency exchange rate.

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How Can I Trade Futures Contracts on Foreign Exchange in India?

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