Currency Trading/ Currency Futures

By Author: Vamsi Krishna
Total Articles: 27
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Currency trading also known as currency futures, forex trading or foreign exchange futures, are exchange-traded futures contracts to buy or sell a specified amount of a particular currency at a set price and date in the future. This is gaining popularity with Traders and investors who seek a better opportunity for profiting. The National Stock Exchange (NSE) offers currency trading in USDINR (US Dollar); GPBINR (British Pound); EURINR (Euro) and JPYINR (Japanese Yen)

Currency has evolved into a reliable asset class due to its deep liquidity, relatively low volatility and low-cost per trade. The changing market dynamics and an unpredictable economic environment have an effect on the national currency’s value. This volatility powers the currency derivatives market – futures and options – and offers a great opportunity for investment besides hedging forex risk.

Currency trading/futures now provide the world’s largest over-the-counter market.

Why Currency Futures?

Currency futures operate similarly to traditional stock and commodity futures. There are many advantages to using them ...
... for hedging as well as speculating. While they can be used to hedge against currency fluctuations, some traders use these instruments in pursuit of profit, just as they would use futures on the spot market.

Hedging: Investors participating in currency futures can hedge against losses and therefore manage risk arising from unfavourable exchange rate movements in a much better way.

Speculation/Investment: Investors can use currency futures to speculate on the short-term movement of the market.

Leverage: Currency derivatives attract the lowest margins among all other forms of derivatives. This amplifies its demand as the return on investment becomes much more attractive with less investment required.

Regulated market: Currency futures trading takes place in a fully regulated and transparent market.

Diversification: Currency as an asset class offers portfolio diversification for its movements and is often uncorrelated to other asset classes. The size of the contracts is small and affordable, enabling a large number of players to enter the market. Thus, an investor can reduce his risk by allotting some portion of his portfolio to currency trading/derivatives.

Daily Settlement: There is daily settlement of Marked to Market pay-in and pay-out, which encourages disciplined trading. In addition, the entire trade takes place on a recognized stock exchange guaranteed by the clearing corporations, thus eradicating the risks associated with counter party defaults.

Why Edelweiss?

Edelweiss is dedicated to building long term relationships with clients and empowering them to gain from market opportunities. We offer a unique online forex trading experience across exchanges and market segments through an intuitive platform - www.edelweiss.in. We also offer rich information on currency futures, stocks, derivatives, mutual funds, commodities and other asset classes. We provide services backed by research and strategies - customized to our client's investment horizon and trading patterns. The retail broking services are also available from nearly 300 offices across the country and this unique, intuitive and hassle-free online broking portal.

Advanced Derivative Desk: Provides investment and arbitrage opportunities that are created at the Alternative Investments and Derivative Desk, a specialized quantitative research desk that combines capital markets intelligence with structured derivative products and economic/corporate developments to create insightful data points.

High quality research team: Provides high quality research while advising clients on the futures and options markets, including listed derivatives, OTC derivatives and underlying cash markets.

Derivative strategies: Provides access to a broad range of intraday strategies based on the objective of gaining from daily market volatility. Investors benefit from actionable strategies that suit their profile, risk appetite and investment pattern.

Online/Offline platform: Provides state-of-the-art online trading platform for currency trading and provide unmatched support and outstanding service through a direct helpdesk.

Ease of fund transferability: Convenient, secure and fast fund transfer facility provides instant limits on the amount transferred. The Edelweiss online platform enables transfers from 20 banks.

Ability to track asset performance in My Portfolio: Provides a smart tracking tool that enables you to conveniently track your investment portfolio. It helps you examine your investments 24x7 and makes information easy-to-understand and faster to act upon.

Competitive pricing: Provides the most attractive brokerage rates for delivery base and non-delivery base transactions in the industry.

Product Features

Access to high quality research & recommendation from Experts, a provision for fungible limits on investment loans and a user friendly platform to invest makes Edelweiss the preferred choice. (Read More)

Research reports: Online access to various fundamental and technical reports covering aspects of currency price movements on a daily, weekly and monthly basis through an efficient in-house research desk.

Leveraged position: Freedom to trade without hassles throughout the day; you can take a leveraged position of up to 6 times for intraday trades.

Intraday strategies: Access to a broad range of intraday strategies based on the objective of gaining from daily market volatility. You will benefit from actionable strategies that suit your profile, risk appetite and investment pattern.

Fungible limits on stock holding: Flexible limits on stock holdings across various asset classes. Enjoy fungible limits on stock holding, i.e. the stock holding limits used for stocks, currency, derivatives or any other asset class that can be utilized for commodities.

FAQs

What are Currency Futures?

Currency Futures are standardized foreign exchange derivative contracts on a recognized stock exchange to buy or sell a standard quantity of one currency against another on a specified future date at a specified price.

They allow clients to take a view on the movement of the exchange rate as well as hedge against currency risk. Clients can use Currency Futures as a trading, investing and hedging tool.

The Reserve Bank of India (RBI) has permitted recognized stock exchanges to offer Currency Futures (CF) contracts in the currency pairs of USD-INR, Euro-INR, Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR.

What is the eligibility for trade in Currency Futures?

Any resident Indian or company, including banks and financial institutions, can participate in the Currency Futures market. At present, Foreign Institutional Investors and Non-Resident Indians are not permitted to participate in the Currency Futures market.

What is the difference between Futures and Forwards?

Futures are Exchange-traded contracts whereas Forwards are over-the-counter (OTC) contracts. Futures are standardized with respect to quantity, quotation method and date of expiry whereas Forwards are tailored to meet the needs of the individual customers. As futures are exchange traded, counter party risk is minimal. Futures are marked to market (MTM) every day.

Author Bio

Ritish Kumar is a finance enthusiast and a keen observer of the Indian share market. In this series of articles, he talks about investing in stock market and staying profitable. online forex trading, currency futures, mutual funds