Non Resident Indians (NRIs) are allowed to trade in a host of financial instruments in India. These include buying and selling shares, mutual fund units, company fixed deposits etc.
Who can Participate in the currency market in India?
An Indian resident can buy currency futures, as also domestic financial institutions. However, Foreign institutional Investors like Non Resident Indians (NRIs) cannot participate in the currency market in India.
Banks and financial institutions on the other hand are permitted to buy and sell in the currency futures market.
How the currency market can hedge against forex risk?
Any small trader who has got exposure to foreign currency risk, can buy or sell on the MCX and thus hedge his risk. Suppose there is an exporter who has to receive $10,000 from exports.
Since, he is not sure what will be the currency rate and if he is happy with the present rate he can sell in the currency futures market before he receives his amount. Thus he has fully hedged his risk.
The currency futures market is thus an excellent tool for those having forex exposure to hedge their risk. They also offer excellent liquidity and are very safe in terms of fulfilling obligations.
Size of contracts in the currency futures market
The contract size is more or less the same for all major currencies, except the Yen.
For USDINR futures contract is USD 1,000, EURINR future contract is EURO 1,000 and for, GBPINR future contract is GBP 1,000. For the JPYINR future contract it is a very high YEN 1,00,000.
So, the next time you are looking to trade in the currency market, remember that if you are a non resident Indian, please avoid trading in the same.