Commodity Online
NEW DELHI : 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.
Advantages of Currency Futures
EASY ACCESSIBILITY: Currency future is being offered on the recognised exchanges in India. NSE (National Stock Exchange) has already commenced currency futures trading. Two more leading exchanges BSE (Bombay Stock Exchange) and MCX (Multi-Commodity Exchange) Stock Exchange would very soon commence currency futures trading. Small investors would get an easy access to currency futures trading on the popular exchanges. It is as easy as trading in a blue chip stock on any of your favorite exhange.
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$. Margin is 1.75%. Don’t you think that it was never so easy and affordable for any retail investor to take a call on Indian Rupee by taking position in currency futures?
LOW TRANSACTION COSTS: When you trade in INT currency futures on NSE in India, you have to pay a small amount of brokerage fees and statutory duties and taxes. In overseas forex trading you have to pay commissions to the banks or foreign exchange agents in the form of spread. Spread is the difference in the buy/sell price over the reference rate, which can be very high.
TRANSPERANCY: It is possible for you to verify trade details on NSE if you have a doubt that the broker has tried to cheat you.
EFFICIENT PRICE DISCOVERY: Internationally it has been established that currency future is a better and efficient mechanism for price discovery. With its state of the art automated electronic trading system where the orders are executed on the basis of price-time priority, NSE is well poised to offer efficient price discovery.
COUNTER-PARTY DEFAULT RISKS: All the trades done on the recognized exchanges are guaranteed by the clearing corporations and hence it eliminates the risks associated with counter party default. NSCCL (National Securities Clearing Corporation Limited) carries out all the novation, clearing and settlement process of currency futures trading.
STANDARDIZED CONTRACTS: Exchange Traded currency futures are standarizsed in respect of lot size (1000$) 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.
