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Currency Derivatives
What is Derivative?
A financial contract between two people or two parties that has a value determined by the price of something else (called the underlying). e.g. NIFTY Index Futures-It derives its value from the S&P NIFTY 50 index.
What is Currency Derivatives?
The term 'Derivatives' indicates it derives its value from some underlying i.e. it has no independent value. Underlying can be securities, stock market index, commodities, bullion, currency or anything else. From Currency Derivatives market point of view, underlying would be the Currency Exchange rate. Derivatives are unique product, which helps in hedging the portfolio against the future risk. At the same time, derivatives are used constructively for arbitrage and speculation too.
What is an "Underlying" and how is it different than "Contract"?
A Currency exchange rate enabled for trading on futures is called an "Underlying" e.g. USDINR. There may be various tradable contracts for the same underlying based on its different expiration period. For example FUT-USDINR-27-Aug-2009, FUT-USDINR-28-Sep-2009 and FUT-USDINR-28-Oct-2009 are "contracts" available for trading in currency futures having USDINR Exchange rate as "underlying".
How is the Currency Futures contract defined?
USDINR future contract expiring on 27 Aug, 2009 is defined as "FUT-USDINR-27-Aug- 2009". Wherein, "Fut" stands for Futures as currency derivatives product, "USDINR" for underlying currency exchange rate and "27-Aug-2009" for the expiry date.
When do the Currency Futures contracts expire?
commodity futures contracts expire two working days prior to the last business day (i.e. Last trading day at exchange) of the expiry month.
What are the benefits of trading in Currency Derivatives?
Currency Derivatives are very efficient risk management instruments and you can derive the below benefits:
- Hedging: You can protect your foreign exchange exposure in business and hedge potential losses by taking appropriate positions in the same. For e.g. If you are an importer, and have USD payments to make at a future date, you can hedge 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. Similarly it would give hedging opportunities to Exporters to hedge their future receivables, Borrowers to hedge foreign currency (FCY) loans for interest and principal payments, Resident Indians, who can hedge their offshore investments.
- Speculation: You can speculate on the short term movement of the markets by using Currency Futures. For e.g. If you expect oil prices to rise and impact India's import bill, you would buy USDINR in expectation that the INR would depreciate. Alternatively if you believed that strong exports from the IT sector, combined with strong FII flows will translate to INR appreciation you would sell USDINR.
- Arbitrage: You can make profits by taking advantage of the exchange rates of the currency in different markets and different exchanges.
- Leverage: You can trade in the currency derivatives by just paying a % value called the margin amount instead of the full traded value.
Who is eligible to trade in Currency Derivatives?
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 Corporates fulfilling the FEMA criteria.
What are the currencies in which we can trade in Currency Futures?
Currently, in Future USDINR, EURINR, GBPINR, JPYINR and in Option USDINR is permitted by the exchange.
How is Currency Futures trading different from Equity Derivatives trading?
Equities Derivatives trading allows you to trade in Stocks and Index. While Currency future trading allow you to trade in currencies; currently in USDINR, EURINR, GBPINR, JPYINR in Future and USDINR in Option. Settlement in both the segments is presently done in cash.
Do I have to pay the full contract value on placing orders in Currency futures?
No. You will be required to place a certain % of order value as margin, while placing a buy/sell position in Currency Futures. With Currency Futures trading, you can leverage on your trading limit by taking buy/sell positions much more than what you could have taken in the Spot market. However, the risk profile of your transactions goes up.
How is the Initial Margin (IM) calculated on open position?
For example, you have open buy position in FUT-USDINR-28-Dec-2009 for 1 lot of 1000 qty @ Rs.50 and IM % for USDINR is 5%. In that case, margin at position level would be 1 * 1000 * 50 * 5% = Rs.2500/-.
What is meant by calendar spread?
Calendar spread means risk off-setting positions in contracts expiring on different dates in the same underlying.
E.g., you take Buy position for 1 lot of FUT-USDINR-28-Sep-2010 @ Rs.50 and sell position for 1 lot of FUT-USDINR-28-Oct-2010 @ Rs.51. 1 lot of buy position in FUT- USDINR-27-Sep-2010 and 1 lot of sell position in FUT-USDINR-28-Oct-2010 form a spread against each other and hence are called "Spread Position". This spread position would be levied spread margin % for margin calculation instead of Initial Margin.
Contracts will be removed from the spread benefit 1 working day prior to the expiry of the near month contract. Therefore, client will have to provide full margin required on all position taken for positions forming a spread.
Can the orders be removed or modified?
Yes, client can modify or delete the orders, until it is not executed, from the trading work station either by him or by placing the order with designated dealers.
Can I put take profit and stop loss orders simultaneously with the trade orders?
Client can place orders for taking profits or for restricting the losses by putting "stop loss orders", once the trade order has been executed, otherwise it there can be a case where “stop loss” or “take profit” orders are executed before the trade orders.
How is the profit or loss recognized for my orders? When are the margins released?
Once the trade executed has been squared off, the profit/loss is credited/ debited in the client’s trading limits.
Margins blocked on a trade position are released only after the Currency Future positions are squared off.
Net amount, after considering the following, is released:
- Margin blocked on Positions
- + Add margin released
- +/- Profit/Loss incurred on square off
- - Applicable taxes.
What is meant by End of Day-Mark To Market (EOD MTM) margin?
Daily EOD MTM is a regulatory aspect of Currency futures Settlement Process. Every day the settlement of open Currency Futures position takes place at the Settlement Price declared by the exchanges for that day.
The Base price of the Open Positions is compared with the Settlement price and difference is cash settled the next day. In case of profit/loss in EOD MTM, Limits are increased/reduced by the amount of profit/loss net of applicable brokerage, taxes, and statutory charges. The position is carried forward to the Next day at the previous trading day's Settlement price at which last EOD MTM was run.
Settlement price for all the contracts are provided by exchange after making necessary adjustment for abnormal price fluctuations. It is the weighted average price of the last half an hour trading on the exchange.
Is it compulsory to square off the position before expiry date of contract?
No. You need not square off your position till the contract expires. In case there is no instruction from client’s side, then position would be closed at the final settlement price as per the current regulations. The Final Settlement price shall be the Reserve Bank Reference Rate on the last trading day of such currency derivative contract, or as may be specified by the relevant authority from time to time. Margin blocked on such expired position will also be released and added into your trading limits after adjusting profit/loss, applicable brokerage, taxes and statutory levies on close out.
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"Attention Investors:* Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020. * Update your mobile number & email Idwith your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge. * Pay 20% upfront margin of the transaction value to trade in cash market segment. * Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 dated August 31, 2020 and other guidelines issued from time to time in this regard. * Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month. Issued in the interest of Investors"
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| Stock Broker Name | Registration Number | Registered Address | Contact Number | Email Id |
|---|---|---|---|---|
| BSE - Capital Market | Future & Options | Currency Derivatives | Commodity Market | WDM I SLB I Membership No : 3287 | SEBI Reg No : INZ000194431 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| NSE - Capital Market | Future & Options | Commodity Market | WDM I SLB I Membership No : 13494 | SEBI Reg No : INZ000194431 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| NSE - Currency Derivatives | Membership No : 13323 | SEBI Reg No : INZ000194431 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| MSEI - Currency Derivatives | Membership No : 62100 | SEBI Reg No : INZ000194431 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| CDSL - Depository Participant | DP ID : 64800 | SEBI Reg No : IN-DP-12-2015 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| NSDL -Depository Participant | DP ID : IN304383 | SEBI Reg. No : IN-DP-12-2015 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| MCX - Commodity Market | Membership No : 56690 | SEBI Reg No .INZ000194431 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| Stock Broker Name | Registration Number | Registered Address | Contact Number | Email Id |
|---|---|---|---|---|
| MCX - Commodity Market | Membership No. : 40385 | SEBI Reg. No. : INZ000032733 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| NCDEX - Commodity Market | Membership No. : F00681 | SEBI Reg. No. : INZ000032733 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| PMS | SEBI Reg. No. : INP000006484 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| AMFI - Mutual Fund Distributor | ARN160670 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] | |
| Research Analyst | SEBI Reg. No. : INH000006369 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| NSE - Currency Derivatives | Membership No. : 90173 | SEBI Reg. No. : INZ000032733 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| BSE - Currency Derivatives | Membership No. : 4096 | SEBI Reg. No. : INZ000032733 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| ICEX - Exchange | Membership No. : 2076 | SEBI Reg. No. : INZ000032733 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| Stock Broker Name | Registration Number | Registered Address | Contact Number | Email Id |
|---|---|---|---|---|
| MCX - Commodity Market | Membership No. : 28595 | SEBI Reg. No. : INZ000059831 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| Investment Adviser | SEBI Reg. No. INA100015285 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| Stock Broker Name | Registration Number | Registered Address | Contact Number | Email Id |
|---|---|---|---|---|
| INDIA INX - Currency Derivatives | Membership No : 5025 | SEBI Reg No : INZ000198632 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
| IIBX - Bullion Trading Member | Membership No : 2006 | IFSCA Reg No : IFSCA/Bullion TM -CM /2021-22 /2006 | 36, 37, 38A, 3rd Floor, 227 Nariman Bhavan, Backbay Reclamation, Nariman Point, Mumbai - 400 021 | +91-022-68170100 | [email protected] |
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“Attention Investors!
▪ Beware of fixed/guaranteed/regular returns/ capital protection schemes. Brokers or their authorized persons or any of their associates are not authorized to offer fixed / guaranteed / regular returns / capital protection on your investment or authorized to enter into any loan agreement with you to pay interest on the funds offered by you. Please note that in case of default of a member claim for funds or securities given to the broker under any arrangement/ agreement of indicative return will not be accepted by the relevant Committee of the Exchange as per the approved norms.
▪ Do not keep funds idle with the Stock Broker. Please note that your stock broker has to return the credit balance lying with them, within three working days in case you have not done any transaction within last 30 calendar days. Please note that in case of default of a Member, claim for funds and securities, without any transaction on the exchange will not be accepted by the relevant Committee of the Exchange as per the approved norms.
▪ Check the frequency of accounts settlement opted for. If you have opted for running account, please ensure that your broker settles your account and, in any case, not later than once in 90 days (or 30 days if you have opted for 30 days settlement). In case of declaration of trading member as defaulter, the claims of clients against such defaulter member would be subject to norms for eligibility of claims for compensation from IPF to the clients of the defaulter member. These norms are available on Exchange website at following links:
▪ Stock Brokers are not permitted to accept transfer of securities as margin. Securities offered as margin/ collateral MUST remain in the account of the client and can be pledged to the broker only by way of ‘margin pledge’, created in the Depository system. Clients are not permitted to place any securities with the broker or associate of the broker or authorized person of the broker for any reason. Broker can take securities belonging to clients only for settlement of securities sold by the client.
▪ Always keep your contact details viz. Mobile number/Email ID updated with the stock broker. Email and mobile number is mandatory and you must provide the same to your broker for updation in Exchange records. You must immediately take up the matter with Stock Broker/Exchange if you are not receiving the messages from Exchange/Depositories regularly.
▪ Don't ignore any emails/SMSs received from the Exchange for trades done by you. Verify the same with the Contract notes/Statement of accounts received from your broker and report discrepancy, if any, to your broker in writing immediately and if the Stock Broker does not respond, please take this up with the Exchange/Depositories forthwith.
▪ Check messages sent by Exchanges on a weekly basis regarding funds and securities balances reported by the trading member, compare it with the weekly statement of account sent by broker and immediately raise a concern to the exchange if you notice a discrepancy.
▪ Please do not transfer funds, for the purposes of trading to anyone, including an authorized person or an associate of the broker, other than a SEBI registered Stock broker.
▪ Do not deal with unregistered intermediaries (who are not registered with SEBI/Exchanges).
