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Rupee Futures

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Futures Contract

Futures is a contract between two anonymous persons to buy or sell a particular commodity or financial instrument at a specific price and at a particular date in the future ,despite the vagaries in the base price of that commodity or financial instrument. It is similar to a forward contract which is an Over the counter product, while futures is traded in exchanges. We can also call it as exchange traded forward contracts.

 

Rupee Futures

In Rupee futures the underlying is the Indian Rupee whose base rate fluctuates as any other currency based on demand, supply and various other factors. Currently, Rupee futures are traded in NSE, MCX-SX and USE stock exchanges in India. Also, the Dubai Commodity exchange offers facility to trade in Rupee futures.

 

Chronology of Rupee Futures

 
August 06, 2008

RBI allowed USD/INR currency futures trading in India.

August 29, 2008

Trading in USD/INR futures commenced in NSE exchange for the first time in India.

October 10, 2008

Trading in USD/INR futures commenced in MCX-SX exchange.

January 18, 2010

RBI gives approval for introduction of EUR/INR, JPYINR and GBPINR Currency Futures.

February 01, 2010

NSE & MCX-SX started trading in EUR/INR, JPYINR and GBPINR Currency Futures.

September 20, 2010

USE commences trading in currency futures with all four pairs.

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Specifications of Rupee Futures Contract

 

Currency pairs

USD/INR, EUR/INR, GBP/INR, and JPYINR

Underlying

Exchange rate of Indian Rupee vs the US Dollar, Euro, Britain Pound and Japanese Yen.

Contract Size

1 lot = 1000  units of US Dollar, Euro and Yen for  USDINR,EURINR & GBPINR pairs
1 lot= 100000 yen for JPYINR pair

Quotes

In Rupee terms

Tick Size

0.0025

Contract Tenor

Monthly contracts up to a maximum of 12 month contracts.

Margins

Initial: 1.75% on first day &1% thereafter

Settlement

Profit/loss is  cash settled in Rupee terms

Settlement Rate

Daily Settlement Rate:  Calculated on the basis of the last half an hour weighted average price.
Final Settlement Rate:  RBI reference rate on the expiry date for the USD/INR & EUR/INR pairs.
For GBP/INR & JPY/INR pairs:   Exchange rate published by RBI in its Press Release captioned RBI reference Rate for US$ and Euro

Last trading Day

Two working days prior to the last business day of the expiry month at 12 noon.

Final Settlement Date

Last working day of month except Saturday. It will be same as that for interbank settlement in Mumbai.

 
Market Participants

Individuals, Corporate, NBFC and Banks can trade in the currency futures segment. FIIs & NRIs are currently not allowed to trade in this segment

 
Hedger
An Individual who has the real exposure to forex risk and wants to hedge his downside risk to prevent losses.
 
Speculator
An individual who doesn’t have the real exposure to exchange risk and want to trade in the markets to take advantage of the price fluctuations.
 
Arbitrageurs

Arbitrageurs take advantage of price differentials in different markets for the same underlying and profit from that. In Rupee Futures trading there exists no arbitraging opportunity and even if it exists the negligible difference in prices between different exchanges for the underlying contract keeps the arbitraging activity at bay.  However, arbitrage opportunity is available between onshore USD/INR OTC market &offshore NDF market and onshore Rupee Futures market & offshore NDF market.

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Liquidity in the Rupee Futures Market

The market is very much liquid so any trader/hedger can enter the market and exit the market conveniently. However, only the near month contracts are more liquid. For example, the first three month contracts are very much liquid for USD/INR and EUR/INR pairs while only the first two month contracts are liquid for GBP/INR & JPY/INR pairs.


The flexibility to exit the futures contract is a boon to the trader, only if he decides to square off the position.  Open positions can be squared off any time during the Exchange's working hours and during the life of the contract. Squaring off can be done by entering an opposite trade position in the underlying contract before its maturity.ie) if one has bought 10 lot EUR/INR FEB 2011 contract then to close the position he has to sell 10 lots EUR/INR FEB 2011 contract.

 

Profit Calculation for Trades in Indian Rupee Futures

In Indian Rupee futures, the profit is calculated with the difference in the value of currency pair [e.g. USD/INR, EUR/INR etc], at which the trader enters and exits his position. Every one paisa gain is equivalent to Rs.10/lot. If a trader’s view goes right and gets a gain of 20 paisa in his position, he gains Rs.200/lot. However, this is without the brokerage charges, service charge and education cess, which a trader should pay to the broker. Normally a broking firm charges 1 to 3 paisa per transaction [either buy or sell]. Saying that, the normal brokerage commission makes up to 2 to 6 paisa for completing one position [i.e. buy and sell or sell and buy]. A trader should consider these charges also before deriving profit for his position.

 
 
 
 
 
 
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