Invest And Trade

A currency Derivatives, also known as FX future is a futures contract to exchange one currency for another at a specified date in the future at a price (exchange rate) that is fixed on the purchase date.

It allows investors to protect foreign exchange exposure in business and hedge potential losses by taking appropriate positions.

Currency Derivatives are available on four currency pairs viz. US Dollars (USD), Euro (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY).

Cross Currency Futures & Options contracts on EUR-USD, GBP-USD and USD-JPY are also available for trading in Currency Derivatives segment.

Types of Currency Derivatives:

Currency Futures
A currency future is a contract to buy or sell currency at a specific price on a future date. Currency futures contract is traded on an exchange, which has standard contract specifications, like units, tick size, expiry date, and settlement rules.

Advantages of Currency Futures:

In case of fluctuations pertaining to exchange rates, corporates can take appropriate positions and hedge any potential losses from exports or imports. e.g. An importer, having USD payments to make at a future date and of the view that USDINR was going to depreciate, they can hedge foreign exchange exposure by buying USDINR and minimize their losses by taking appropriate positions through hedging with the help of currency derivatives.

Investors 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.

Investors can make profits by taking advantage of the exchange rates of the currency in different markets and different exchanges.

Investors can trade in the currency derivatives by just paying a 2.5 to 5 % value called the margin amount instead of the full traded value.

Currency Options:
A Currency option is a contract which gives the option buyer the right, but not the obligation to buy or sell the underlying at a stated date and at the stated price

There are two types of currency options: calls and puts. Buying a call option gives the holder the right to buy a currency pair for the strike price on or before the expiry date, and buying a put option gives the holder the right to sell a currency pair for the strike price on or before the expiry date.

Advantages of Currency Options:
thik   Limit losses to the premium paid as investors are not obliged to buy or sell the underlying on expiry.
thik   Provide protection against exchange rate fluctuations in investment portfolios.
thik   Allow investors to take advantage of price movements in the exchange rate because they can take a view as to whether the exchange rate will strengthen or weaken.
thik   Standardized contracts traded on a regulated exchange eliminate counterparty risk.
thik   Highly liquid