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Futures or futures contracts are derivatives bought or sold on a futures exchange. Futures
are contracts to buy or sell a particular commodity at a specified price on a certain date in
the future.
Currency futures are traded according to the rules and regulations that are drawn by the
futures exchanges. The trading can be done either on the floors of these futures
exchanges or these exchanges can facilitate electronic trading for its members. The
Chicago Mercantile Exchange is the world's largest and most successful exchange for
trading in currency futures, with offices in Chicago, New York, Washington, London and
Tokyo.
Like all futures contracts, currency futures are standardized contracts too. The futures
exchange sets the contract specifications. However, only the exchange rate can be
negotiated by the buyers and sellers. The remaining specifications, such as defining the
underlying currency, trading unit and delivery month, are set by the futures exchange.
• Easy Accessibility - Small investors would get an easy access to currency futures
trading on the popular exchanges
• Easy Affordability - Margins are very low and the contract size is very small
• Low Transaction Cost - As opposed to the high pay-out of commissions in
overseas forex trading, currency futures carries low costs for investors
• Transparency - It is possible for you to verify trade details on NSE if you have a
doubt that the broker has tried to cheat you
• Counter-party default risk - All the trades done on the recognized exchanges are
guaranteed by the clearing corporations and hence it eliminates the risks
associated with counter party default. NSCCL (National Securities Clearing
Corporation Limited) carries out all the notation, clearing and settlement process
of currency futures trading
• Standardized Contracts - Exchange Traded currency futures are standardized in
respect of lot size ($1000) and maturity (12 monthly contracts). Retail investors
with their limited resources would find it tremendously beneficial to take
positions in standardised USD INR futures contracts
Moreover, the currency futures market is used by some companies for hedging. These
companies either purchase currency futures for their future payables, or sell the futures on
currencies for their future receipts.
Speculators may also buy or sell futures on a foreign currency as a protection against the
strengthening or weakening of the US dollar. So, speculators may be able to earn profit
from the rise or fall of these exchange rates.
Trading in Currency futures or forex trading comes with high levels of risk. Even a small
adverse fluctuation in the exchange rate may result in loss of the entire deposit of
someone trading in currency. Only people having an in-depth knowledge of the working
of this market or have done a thorough homework about the risks involved are advised to
trade in this market.
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Currency Futures trading entered its second week in India and already proved to be a
success within this short time period.
However, common man is yet to get acclimatized with Currency Futures in general and
particularly with advantages it provides.
For a common-man in India, question of handling forex rarely arose in the past until as
late as early 21st Century. Indian economy has grown rapidly during the last few years.
India is one of the top global economies.
Nowadays it is common to find Indian residents often looking out for hedging currency
risks. Unlike in the past, a large population of India (common-man) earns huge amount of
foreign exchange from overseas.
INR has seen huge fluctuations of around 10% in its price against USD in a span of less
than one year. Indian financial markets offered very few options such as currency
forwards, swaps and options (traded on OTC - over the counter market) to Indian
investors for hedging their currency risks.
Besides, cash Forex or OTC Forex trading is not easily accessible to small investors.
Even more, it was suitable to only large participants due to various factors that acted as
the deterrent to retail investors.
NSE (National Stock Exchange of India) was the first recognised exchange to launch
currency futures trading in India. Currency futures offer unique advantages over overseas
forex trading to retail investors and small traders.
EASY AFFORDABILITY: Margins are very low and the contract size is very small. As
per the specification of NSE USD-INR currency future contract, the lot size is 1000$.
Margin is 1.75%. Don’t you think that it was never so easy and affordable for any retail
investor to take a call on Indian Rupee by taking position in currency futures?
LOW TRANSACTION COSTS: When you trade in INT currency futures on NSE in
India, you have to pay a small amount of brokerage fees and statutory duties and taxes. In
overseas forex trading you have to pay commissions to the banks or foreign exchange
agents in the form of spread. Spread is the difference in the buy/sell price over the
reference rate, which can be very high.
TRANSPERANCY: It is possible for you to verify trade details on NSE if you have a
doubt that the broker has tried to cheat you.