Currency Futures & Options

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Currency Derivatives Trading

Currency derivatives refer to Future and Options contracts that can buy or sell specific quantity of a currency pair at a particular rate on a future date. These derivatives are similar to the Stock Futures and Options trades but here the underlying asset being traded is a currency pair like USD/INR or JPY/INR or GBP/INR or EUR/INR and not stocks.

A Currency Futures Contract differs from a Forward Contract since the latter is an over the counter product while the former is an agreement to buy or sell a currency pair at a specific price on a specific but pre determined date. Currency Futures contracts have several advantages over the Forward Contracts. These are:
  • Price transparency as you know in advance about the price at which the transaction will take place.
  • No chances of counter-party credit risk.
  • Easy accessibility.

Currency Derivatives Trading

Currency derivative trading is carried out on the trading system of USE, MCX SX and NSE called the NEAT-CDS or the National exchange for Automated Trading- Currency Derivatives Segment trading system. This system offers a fully automated screen based trading system for currency futures as well as online monitoring.

Trading in currency derivatives is possible after a trade account is opened and the stipulated funds or collaterals are deposited with the trading member of an exchange trading in currency derivatives. The clearing and settlement of all currency derivatives trade executed on NSE is done by the National Securities Clearing Corporation Limited or NSCCL. The organization also acts as a legal counter party to all currency derivatives trade and thus guarantees their financial settlement.

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