Forex Trading - FAQ's

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What are Currency Futures ?

Currency Futures traded on NSE-CDX - are standard contracts of a specified quantity - to exchange one currency for another - at a specified date in the future called settlement date - at a price that is fixed on the purchase date called futures price.

Why Trade in Currency Futures ?

Currency Futures allows investors to take a view on the movement of the Indian Rupee (INR) against other currencies.

What is the other Currency Derivatives Traded on NSE –CDX ?

Currently, only Currency Futures are allowed to be traded by SEBI.

What do we meant by Currency Futures ?

A currency forward contract is traded in the over-the-counter market usually between two financial institutions or between a financial institution and its client.

How does the Indian Forex market work ?

The Foreign Exchange Management Act is the law which regulates the Forex market. The regulatory authority for the Indian Forex market is the Reserve Bank of India (RBI). However, the Exchange Traded Currency Futures market is regulated by SEBI through the recognized stock exchanges.

What volatility have we observed in the Indian Forex market?

The period beginning 1993, when the Indian Rupee moved away from an administered exchange rate, was a period of low currency volatility. This was followed by a period of high volatility during the Asian crisis after which the period again witnessed low volatility, followed yet again by a high volatility period.

What is Counter-party or Credit Risk?

The ICCL (the Clearing Corporation of Bombay Stock Exchange Ltd.) gives an unconditional guarantee for the net settlement obligations of all clearing members in the currency derivative segment. As such, in case of default of a clearing member, ICCL becomes counter-party for his net settlement obligations and thus other market participants remain unaffected.

Who can trade in the Currency Futures Market?

Except FIIs and NRIs, every individual/corporate/institution/bank etc. is allowed to trade in the Currency Futures market.

Which currencies are allowed to trade on NSE-CDX?

To begin with, only US Dollar ($) futures is being traded against the Indian Rupee (INR). The contract for say the month of April will be called USDAPR2010.

How many contracts are available for trading in NSE-CDX?

There are 12 near calendar months contract available for trading along with spread contracts for every combination.

How can I sell a Futures Contract before I own it?

You do not need to own the underlying currency when you enter into a futures contract. The contract simply represents a commitment to either sell or buy the asset on the set expiry date.

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RISK DISCLOSURES ON DERIVATIVES

  • 9 out of 10 individual traders in equity Futures and Options Segment, incurred net losses.
  • On an average, loss makers registered net trading loss close to ₹ 50,000.
  • Over and above the net trading losses incurred, loss makers expended an additional 28% of net trading losses as transaction costs.
  • Those making net trading profits, incurred between 15% to 50% of such profits as transaction cost.

Source:

1. SEBI study dated January 25, 2023 on “Analysis of Profit and Loss of Individual Traders dealing in equity Futures and Options (F&O) Segment”, wherein Aggregate Level findings are based on annual Profit/Loss incurred by individual traders in equity F&O during FY 2021-22.