The Indian rupee has hit a recent high of 65.57 to the US dollar, gaining from levels of Rs 68. It maybe now time to buy into the US dollar and here is why.
To begin with what we are talking of is buying the US Dollar from the futures market in India and not physical dollars. You cannot buy large quantities of physical dollar as beyond the stipulated limit it would be a violation of the existing provisions of the law.
How to buy dollars in the futures market?
The currency is freely traded and you can buy it on the NSE in the currency segment. You need to buy 1 lot, which is 1000 dollars. However, since the margin is less you will end-up paying only Rs 3,000-4,000 for 1000 dollars. If you have an account to trade in shares, the broker will just add you to the currency segment to buy and sell dollars.
What are the various options for the currency?
Remember in the futures market you always have to square off your position. As an example, if you buy 1000 dollars of March contract the (price at the moment is 65.62) it means that you have to square off your position by the end of March. If you buy the US dollar with June expiry, you need to pay 66.46 and square it off by the end of June. You can buy forward contracts up to 1 year, unlike the stock markets where you have to square off your contracts in three months.
Why to buy the US dollar now?
The Indian currency has gained heavily against the dollar rallying from levels of Rs 68 to the current levels of Rs 65.43. It is doubtful that the currency would gain significantly in the coming days, given that it has always been a tendency to fall against the US dollar. Also, as the US economy continues to gain strength it is highly possible, that the dollar would strengthen against a basket of currencies including the rupee. If you would buy now, it would be a good time to sell the currency later.
Try to take a short term contract
It is better to take a short term contract, as the prices keep rising with a longer term contract. It is also extremely difficult to predict movement in the more medium to long term. And these contracts are for a specific time period, so you need to square-off your position.