• What is Currency trading?

Trade is an international business and for any trade payments are settled in Currencies, which
are specific to the countries/regions involved. Whenever any Currency is bought or sold for
another, the transaction is known as 'Currency trading'. Currency trading is the largest financial
market globally, followed by Commodities and Equities. Investors, speculators and corporates
are involved in cross-border Currency trade.

• Why do we have Exchange Traded Currency Derivatives?

Exchange Traded Currency Derivatives provide greater access for market participants, be it
investors, speculators or corporates who may want to trade Currencies to hedge their Currency
risk. Exchange Traded Currency Derivatives offer efficient risk management mechanisms and
provide a transparent trading platform, with no chance of anybody dealing with insider
information.

Currency Derivatives are known for their efficiency in price discoveries providing immunity
from counter-party credit risks. They also provide access to all types of market participants and
make it an easy-to-use financial instrument by offering standardised products and settlement
cycles. In Currency Derivatives, even small orders, ie up to one contract or USD1,000, can be
executed.

• What are Exchange Traded Currency Futures?

The Exchange Traded Currency Futures contract is an agreement to buy or sell the underlying
Currency on a specified date in the future and at a specified rate. The underlying asset for a
Currency Futures contract is a Currency. The Exchange’s clearing house acts as a central
counter-party for all trades and thus, takes on a performance guarantee.

• What is a Currency Futures contract?

A Currency Futures contract is a standardised version of a Forward contract that is traded on a
regulated Exchange. It is an agreement to buy or sell a specified quantity of an underlying
Currency on a specified date in the future at a specified rate.

• Can Currency Futures help small traders?

Yes. The minimum size of a USD/INR Futures contract is USD1,000 (about INR50,000). All
transactions on the Exchanges are anonymous and are executed on a price-time priority. This
means that the best price is available to all categories of market participants irrespective of their
trading size. Another interesting aspect is the fact that the profits/losses in the Futures market
are collected/paid on a daily basis, which limits the scope for losses for participants.
 • I do not have any exposure to Forex risk. Does a
Currency Futures exchange mean anything to me?
Yes. You can benefit from the exchange rate fluctuations just as you can benefit by investing in
Commodities and/or Equities. However, you also stand to lose money if price movements are
not in line with your expectations. Trading Currency Futures is risky, just as Commodities
and/or Equities. You should, therefore, be knowledgeable about the Currency market if you
want to participate in it.

• How do Exchange Traded Currency Futures enable

hedging against Currency risk?
On a Currency exchange platform you can buy or sell Currency Futures. If you are an importer,
you can buy Futures to 'lock in' a price for your purchases at a future date. You thus avoid
exchange rate risk. If you are an exporter, you sell Currency Futures on an exchange platform
and 'lock in' a sale price at a future date.

• What are the risks involved in the Currency Futures

market?
Risks in Currency Futures relate to movements in Currency exchange rates. There is no
standard rule to determine whether the Currency exchange rate will rise or fall or remain
unchanged in the future. A judgment on this is the domain of experts with deep knowledge and
understanding of the variables that affect Currency rates.

• What are the factors that affect the exchange rate of

Currencies?
A country’s exchange rate is typically affected by the supply of and demand for the country’s
Currency in the international Forex market. The demand-and-supply dynamics is principally
influenced by factors such as interest rates, inflation, trade balance and political and economic
scenarios in the country. The level of confidence in the economy of a particular country also
influences the Currency of that country.
 • Why trade Currency Futures?
Currency Futures allow investors to take a view on the movement of the Indian Rupee against
other Currencies. This can be used to protect one’s business from Currency risks due to
fluctuation of the exchange rates.

• What is a Currency Forward contract?

A Currency Forward contract is traded in the over-the-counter (OTC) market, usually between
two financial institutions or between a financial institution and its client.

What does Currency appreciation and depreciation

mean?
Let’s assume that the current exchange rate of the USD to the INR is INR45. When the value of
the Rupee moves up to INR44/USD, we would say that the Rupee has appreciated in value
against the USD. It means we can buy USD100 for INR4,400 instead of INR4,500.

Similarly, when the value of the Rupee moves down to INR46/USD, we would say that the
Rupee has depreciated in value against the USD. It means we can buy USD100 for INR4,600
instead of INR4,500.

• How volatile is the Indian Forex market?

The Indian Forex market is very much influenced by the global markets. Post the global
financial crisis of 2007/2008, the Indian Rupee has become much more volatile. It happens
regularly that you can see the Indian Rupee moving 50-70 paise in intra-day trading.

• What is counter-party or credit risk?

The clearing house gives an unconditional guarantee for the net settlement obligations of all
clearing members in the Currency Derivatives segment.
 • What is the settlement price?
As per established norms, the Reserve Bank Reference Rate, on the date of expiry, will be the
settlement price.

• When does a Currency Futures contract expire?

A Currency Futures contract expires on the last working day (excluding Saturdays and FEDAI
holidays) of any given month.

• What types of margins are levied on trades?

There are four types of margins mandated by SEBI and they are as follows:
• Initial Margin,
• Extreme Loss Margin,
• Calendar Spread Margin and
• Mark-to-Market Margin.

• What is the Initial Margin?

The Initial Margin is 1.75% on the first day of Currency Futures trading and 1% thereafter.

• What is the Extreme Loss Margin?

The Extreme Loss Margin is 1% of the Mark-to-Market value of the gross open positions.

• What is the Calendar Spread Margin?

The Calendar Spread Margin is INR250 for all months of the spread. The benefit for a Calendar
Spread will continue until the contract expires.

• What is the Mark-to-Market Margin?

Mark-to-Market is an accounting calculation tracking the current market value of an asset. The
calculations are done daily. Mark-to-Market is based on the current market value of the assets in
question (ie Commodities, Securities, Derivatives, etc). It reflects how much such assets would
be sold for if they were put on the market today.