Quick Facts about Currency Futures Trading on NSE

Quick Facts about Currency Futures Trading on NSE

After having successfully completed mock testing, NSE has braced itself to launch much eagerly anticipated currency futures trading in India. Mr. P. Chidambaram, Honorable Union Finance Minister will inaugurate currency futures trading at 8.45 am on 29^th August 2008 on NSE, India’s largest stock exchange. NSE will go in the history of the currency futures trading as the first exchange in India to start foreign currency futures in India.

Currency future is a standardized futures contract like any other stock and commodity futures contract with currency as the underlying instrument. Essentially, it is a contract or an agreement to buy or sell any currency at a specified future date viz. contract expiry date. As the contracts are traded on recognized exchanges, the performance guarantee is assured by the exchange.

Here Is A Quick Guide On Currency Futures Trading On NSE

1. Exchange Timing:00 am to 5.00 pm.
2. Currency Pairs: Initially only USD/INR currency pair would be available. Subsequently NSE may introduce other currency pairs based on the statutory guidelines and approvals from RBI and SEBI.
3. Contract Size: Size is set at 1000$ per lot (contract).
4. Contract Maturity: The currency futures contracts would be available for maturity period from one month to 12 months period. (total 12 monthly contracts)
5. Quote: Currency futures would be quoted in INR with a tick size (incremental value) of 0.25 (25 Paisa).
6. Margins: NSE would stipulate initial margin and maintenance margins as per its existing practice of levying SPAN (Standardized Portfolio ANalysis of risks) margins based on the daily volatility in the foreign exchange currency markets.
7. MTM (Mark to Market): Like stock and commodity futures, currency futures would involve daily MTM (mark to market) margins. MTM would be worked out on the basis of daily closing prices of currency futures as declared by NSE. Settlement of MTM would take place on T +1 basis as is presently done in equity derivatives segment. NSE has laid out suitable mechanisms to pay in/pay out daily MTM margins from the brokers. NSCCL (National Securities Clearing Corporation Limited) would be responsible for the entire clearing, settlement and risk management functions.
8. Settlement Price: Final settlement price of the currency future contract would be decided as per the exchange rate fixed by RBI on the last trading day of the contract. Settlement would take place in cash in terms of INR.
9. Position Limits: Upper limit on maximum permissible open position has been capped at 25 million dollar.
10. Permissibility: Initially only resident Indians are allowed to trade in currency futures. It is expected that as the market matures, other participants viz. NRI and FII would also be allowed to trade in currency futures.
11. Miscellaneous: Other vital issues such as taxation aspects on the profit and loss, STT (Securities Transactions Tax), brokerage charges and other duties such as stamp duty are not yet clear.

Summing Up:

Due to small size of the currency futures contract, small traders (who are normally away from foreign exchange trading on OTC markets) would be encouraged to look at the new investment avenue in the form of currency futures. Besides the regular exporters/importers and large number of bullion traders, there are tens of thousands of Indians who earn foreign exchange in the form of salary, consultancy fees and home based income from overseas companies. Currency futures would be an excellent proposal for hedging the risks associated with fluctuations in foreign exchange markets.

Do visit for a step-by-step guide and FAQs on how to trade in currency futures.