Currency Product Note 3

Product Note February, 2010
OVERVIEW
Foreign exchange rates, like any other asset class move depending on various factors, like demand-supply, interest
rate parity, trade and capital flow, speculators taking positions, clients hedging risk arising from their trade and
capital flow etc. Introduction of currency futures will complete the suite of instruments available for trading and
hedging to the Indian resident through exchange platform.
CURRENCY FUTURE TRADING
The currency futures trading will be of interest to those who wish to :-

Invest
Hedge
Arbitrage
Speculate
WHO IS ELIGIBLE TO TRADE
Individuals
Corporate
Firms
Others
HOW DO THE CLIENT STARTS TRADING
Currency futures can be bought and sold through RSL currency future trading platform. Client will have to open
a trading account with RSL and complete the following registration formalities
CLIENT REGISTRATION FORMALITIES
The client desirous of trading in currency futures through RSL would be required to submit following documents :-
Know your client form (KYC) along with necessary required documents
Member Constituent Agreement
Risk Disclosure document
RESEARCH DESK - Religare Commodities Limited Address: A2, A-3,A-4,plot No.11, 5th Floor, Park Centra ,Sector-125,Noida ,U.P-201301
E-mail: currency@religare.in Website: www.religarecommodities.com | REL/RCL/CRD/TM/19/00
1
CONTRACT SPECIFICATIONS
Trading Monday To Friday
Trading Hours 9:00 AM to 5:00 PM
Price Quotation In INR
Tenor of Contract Maximum of 12 Months
Available Contracts Monthly
Settlement Mechanism In INR
Settlement Reference Rate RBI Reference Rate
Last Trading Date Two working days prior to Final Settlement Date
Final Settlement Date Last working day of month, except Saturday.
Daily settlement : T + 1
Settlement Final settlement : T + 2
2
USD-INR
Symbol USD-INR
Contract Size USD 1000
Tick size 0.25 Paisa or INR 0.0025
Quantity Freeze Above 10,000
+/-3 %(Tenure upto 6 months )
Price Range +/- 5% (Tenure greater than 6 months)
Client position limit Higher of 6% of total open interest or USD 10 million
Minimum Rs. 400/- per contract for one month of spread and Rs. 500
Calendar spreads for Two month Spread and Rs.800/- for three months spread
Initial Margin Minimum 1.75 % on First day and 1% thereafter
Extreme
Loss Margin 1%
3
EUR-INR
Symbol EUR - INR
Contract Size EURO 1000
Client position limit Higher of 6% of total open interest or EURO 5 million
Minimum Rs. 700/- per contract for one month of spread, Rs. 1000 for
Calendar spreads Two month Spread and Rs.1500/- for three months spread or more
Extreme
Loss Margin 0.3 %
4
GBP-INR
Symbol GBP - INR
Contract Size Pound Sterling 1000
Client position limit Higher of 6% of total open interest or GBP 5 million
Extreme
Loss Margin 0.5 %
5
JPY-INR
Symbol JPY - INR
Contract Size Japanese Yen 100000
Client position limit Higher of 6% of total open interest or YEN 200 million
Initial Margin Minimum 4.50 % on First day and 2.30% thereafter
Extreme
Loss Margin 0.7%
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TRADING PARAMETERS
Following trading parameters and order attributes are specified for the Currency Derivatives
segment:
DAILY SETTLEMENT PRICE
Daily settlement price for futures contracts shall be the closing price of such contracts on the trading
day. The closing price for a futures contract shall be calculated on the basis of the last half an hour
weighted average price of such contract or such other price as may be decided by the relevant
authority from time to time.
Theoretical daily settlement price for unexpired futures contracts which are not traded during the
last half an hour on a day
Theoretical daily settlement price for unexpired futures contracts, which are not traded during the
last half an hour on a day, shall be the price computed as per the formula defined by NSCCL.
Final Settlement Price for mark to market settlement of futures contracts
Final settlement price for a futures contract shall be the Reserve Bank Reference Rate on the last
trading day of such futures contract, or as may be specified by the relevant authority from time to
time.
Calendar Spread Margins
A currency futures position in one expiry month which is hedged by an offsetting position in a
different expiry month would be treated as a calendar spread.
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Futures Final Settlement Margin
Futures Final Settlement Margin shall be levied at the clearing member level in respect of the final settlement
amount due. The final settlement margins shall be levied from the last trading day of the contract till the
completion of pay-in towards the Final Settlement.
Extreme Loss margins
Clearing members shall be subject to extreme loss margins in addition to initial margins. The applicable
extreme loss margin shall be 1% on the mark to market value of the gross open positions or as may be
specified by the relevant authority from time to time.
In case of calendar spread positions, extreme loss margin shall be levied on one third of the mark to market
value of the open position of the far month contract.
Extreme Loss margin requirement shall be computed as under:
1. For client positions - shall be netted at the level of individual client and grossed across all clients, at
the trading/ clearing member level, without any set-offs between clients.
2. For proprietary positions - shall be netted at trading/ clearing member level without any set-offs
between client and proprietary positions.
The margins so computed shall be aggregated first at the trading member level and then aggregated at the
clearing member level.
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Dollar/INR Trading:
View Trade on USD/INR View Trade on USD/INR

Bullish on USD Buy USD/INR Bearish on USD Sell USD/INR
Bullish on INR Sell USD/INR Bearish on INR Buy USD/INR
Let’s take an example, suppose that USD/INR March contract is trading at Rs. 50.9550, one has a
bullish view on USD or bearish view on INR. He enters the market to buy 10 lots of USD/INR March
future.
Trading USD/INR
Entry Price Rs. 50.9550
Lot Size 1000 USD
No. of Lots 10
Assuming that USD/INR closes at 51.0550, current position is shown in the table given below
Trading USD/INR
Closing Price Rs. 51.0550
Lot Size 1000 USD
No. of Lots 10
MTM Profit Rs. 1000 (on 10 lots)
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Movement of 10 paise or INR 0.10 in favour of the trade; gave a profit of Rs. 1000 on 10 lots. If only
1 lot was traded, movement of 10 paise will affect the net position by Rs 100.
Similarly if someone has opposite view i.e. bearish view on USD or bullish view on INR. He will enter
market to sell USD/INR and lets say, sell 10 lots of USD/INR March future at Rs. 50.9550.
Trading USD/INR
Lot Size 1000 USD
No. of Lots 10
Assuming that USD/INR closes at Rs. 51.0550, current position is shown in the table given below
Trading USD/INR
Lot Size 1000 USD
No. of Lots 10
MTM Loss Rs. 1000
1
0
If someone wants to trade in GBP/INR bearish view on GBP or bullish view on INR. He will enter
market to sell GBP/INR and lets say, sell 10 lots of GBP/INR February future at Rs. 74.
Trading GBP/INR
Entry Price Rs. 74
Lot Size 1000 GBP
No. of Lots 10
Assuming that GBP/INR closes at 74.10, current position is shown in the table given below
Trading GBP/INR
Entry Price Rs. 74
Lot Size 1000 GBP
No. of Lots 10
MTM Loss 1000
1
1
If someone wants to trade in EUR/INR bearish view on EUR or bullish view on INR. He will enter
market to sell EUR/INR and lets say, sell 10 lots of EUR/INR February future at Rs. 64.
Trading EUR/INR
Entry Price Rs. 64
Lot Size 1000 Euro
No. of Lots 10
Assuming that EUR/INR closes at 64.10, current position is shown in the table given below
Trading EUR/INR
Entry Price Rs. 64
Lot Size 1000 Euro
No. of Lots 10
MTM Loss 1000
1
2
If someone wants to trade in JPY/INR bearish view on JPY or bullish view on INR. He will enter
market to sell JPY/INR and lets say, sell 10 lots of JPY/INR February future at Rs. 52.
Trading JPY/INR
Entry Price Rs. 52
Lot Size 100000 Yen
No. of Lots 10
Assuming that JPY/INR closes at 52.20, current position is shown in the table given below
Trading JPY/INR
Entry Price Rs. 52
Lot Size 100000 Yen
No. of Lots 10
MTM Loss 2000
1
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Payoff profile for Futures Trading
Long at 51.60
51 .8
51 .7
51 .6
lon g a t 51 .6 0
51 .5
P ri c e s
51 .4
51 .3
51 .2
51 .1
Short at 51.60
51 .8
51 .7
51 .6
S hort at 51.60
51 .5
P ri c e s
51 .4
51 .3
51 .2
51 .1
C ontrac ts
1
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Disclaimer
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Product Note February, 2010

CURRENCY FUTURE TRADING

The currency futures trading will be of interest to those who wish to :-

Trading Monday To Friday

Trading Hours 9:00 AM to 5:00 PM

Price Quotation In INR

Tenor of Contract Maximum of 12 Months

Available Contracts Monthly

Settlement Mechanism In INR

Settlement Reference Rate RBI Reference Rate

Final Settlement Date Last working day of month, except Saturday.

Settlement Final settlement : T + 2

Contract Size USD 1000

Tick size 0.25 Paisa or INR 0.0025

Quantity Freeze Above 10,000

+/-3 %(Tenure upto 6 months )

Price Range +/- 5% (Tenure greater than 6 months)

Client position limit Higher of 6% of total open interest or USD 10 million

Initial Margin Minimum 1.75 % on First day and 1% thereafter

Symbol EUR - INR

Contract Size EURO 1000

Tick size 0.25 Paisa or INR 0.0025

Quantity Freeze Above 10,000

+/-3 %(Tenure upto 6 months )

Price Range +/- 5% (Tenure greater than 6 months)

Client position limit Higher of 6% of total open interest or EURO 5 million

Initial Margin Minimum 2.80 % on First day and 2% thereafter

Loss Margin 0.3 %

Symbol GBP - INR

Contract Size Pound Sterling 1000

Tick size 0.25 Paisa or INR 0.0025

Quantity Freeze Above 10,000

+/-3 %(Tenure upto 6 months )

Price Range +/- 5% (Tenure greater than 6 months)

Client position limit Higher of 6% of total open interest or GBP 5 million

Initial Margin Minimum 3.20 % on First day and 2% thereafter

Loss Margin 0.5 %

Symbol JPY - INR

Contract Size Japanese Yen 100000

Tick size 0.25 Paisa or INR 0.0025

Quantity Freeze Above 10,000

+/-3 %(Tenure upto 6 months )

Price Range +/- 5% (Tenure greater than 6 months)

Initial Margin Minimum 4.50 % on First day and 2.30% thereafter

Loss Margin 0.7%

DAILY SETTLEMENT PRICE

Final Settlement Price for mark to market settlement of futures contracts

Calendar Spread Margins

Extreme Loss margins

Extreme Loss margin requirement shall be computed as under:

View Trade on USD/INR View Trade on USD/INR

Entry Price Rs. 50.9550

Lot Size 1000 USD

Entry Price Rs. 50.9550

Closing Price Rs. 51.0550

Lot Size 1000 USD

MTM Profit Rs. 1000 (on 10 lots)

Entry Price Rs. 50.9550

Lot Size 1000 USD

Entry Price Rs. 50.9550

Closing Price Rs. 51.0550

Lot Size 1000 USD

MTM Loss Rs. 1000