How to trade in Currency futures market?

The Indian economy has witnessed a rapid growth over the last twenty years, and investors' interest in currency market is increasing day by day. A currency-trading platform is a resource for an investor to either invest in currencies for gaining profits or to shield himself from the downfall of a negative movement of the exchange rate in the value of a currency. It is considered to be a new asset class for diversification of investments for all Resident Indians.

Who can trade in Currency futures market in India?

Initially, only banks and large corporates used to enter into currency market but now independent traders, large financial institutions, trading companies, importers, exporters, and commercial hedgers can buy and sell currency all over the world.

It gives hedging opportunities to:

• Importers and exporters can hedge their future payables and receivables
• Borrowers can hedge foreign currency loans for interest and principal payments
• Resident Indians can hedge their offshore investments
• Commodity traders can hedge against unfavorable movements of gold, crude etc.

At present, Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are not allowed to participate in currency futures market.

(To know more about Currency Market, click here)

How to trade in currencies and various points to consider:

• Exchanges: Currently in India, MCX-SX, NSE, BSE offer Currency Futures and apart from these, United Stock Exchange of India (USE) promoted by Bank of India has also come up with the currency futures platform.
• Trading Account: Before trading, the investor or trader needs to open a trading account with any brokerage house i.e. member of any of the stock exchange.
• Initial investment: Further, they need to deposit the stipulated cash and/or collaterals with the trading member.
• Currency Pairs available: USD/INR, EUR/INR, GBP/INR, JPY/INR
• Contract Size: Currency futures contracts are available in minimum contract size of US$ 1,000. This allows small participants to enter and hedge their currency risk.
• Leverage: The margins requirements are low. Also, since the profits or losses are collected / paid on a daily basis, the scope for building up of the mark-to-market losses in participants" books is limited.
• Trading hours: The trading in Currency Futures at present takes place between 9:00 am to 5:00 pm on all working days from Monday to Friday.

(Also read, different types of Foreign Exchange Instruments in India)

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