There are many segments in NSE nowadays like cash Segment, F&O Segment and CDS Segment. Mostly investors are active in the Cash and F&O segment. However, the CDS segment is also slowly becoming popular. Let’s understand it in detail with related terms.
Table of Contents
What is CDS Segment ?
Full form of the CDS Segment is Currency derivatives Segment. This segment is basically for currency trading. The US Dollar (USD), Euro (EUR), Great Britain Pound (GBP), and Japanese Yen (JPY) are the four currency pairs on which currency derivatives are traded (JPY).
In the Currency Derivatives section, cross currency futures and options contracts on the EUR-USD, GBP-USD, and USD-JPY are also offered for trading.
FX Future
A currency future, often described as an FX future, is a futures contract that allows you to exchange one currency for another at a set price (exchange rate) on the issue date.
The value of a future contract on the NSE is expressed in INR per unit of another currency, such as US Dollars. Currency future contracts help investors to protect themselves against the risk of currency depreciation.
Use of CDS Segment
Every business is vulnerable to unanticipated changes in the business environment. Exchange rate volatility has a significant impact on your business’s growth. You are immediately affected by exchange rate fluctuations if you are an exporter, importer, or have foreign currency debt.
Passive connection including local buying of imported products via brokers, domestic buys of LME connected commodities, FX borrowing on subsidiary books, and many more, could constitute a significant risk. These risks can be mitigated by using appropriate hedging products.
Difference Between CDS & OTC
| Basis | Currency Derivatives Segment | OTC |
| Participation | All resident Indians and FPIs can participate (except NRIs ) | Only those with basic assets are permitted to participate. |
| Bid-Ask Spread | The margin between bid and ask might be as low as 0.0025 INR (near month). | Bid-ask spreads can range from 1 to 2 paisas. |
| Transparency | High price transparency — the same outright price is offered to you in real time. | Low transparency – if not in the moment, then in forwards, price moving is feasible. |
| Price | Without pricing or customer discrimination, you can trade/hedge as little as $1000. | Price discrimination – changes depending on the client (card rates for small lots) |
| Accessibility | Higher accessibility – you can trade from your computer using a remote trading platform. | Lower accessibility – To transact, you must phone the bank’s dealing room. |
| Data | You may simply access/view the top 5 orders available on the market. | Asymmetry of information — only banks have accessibility to the order flow window. |
Example of Hedging Using Currency Futures for Exporter
XYZ is an exporter. On 15th October 2019, XYZ Limited wished to book its inward remittance for 26th Nov. 2019 worth $100,000. (Expiry for Nov. month is 26th Nov. 2019)
Futures Rate for Nov. Expiry : 65.50
No of Contracts (100,000/1000): 100
Sell Currency Futures at 65.50
Notional Value for $100,000 = 65,50,000 (65.50*100000)
Margin** 4% posting on T day = INR 2,62,000 (65,50,000*4%)
Expiry –
Settlement of Currency Futures @ RBI Ref. Rate On expiry 26th Nov. 2019, if RBI Ref Rate is as follows
Case I
Assume USD/INR – 67.00 (RBI Ref Rate)
Loss: = (65.50-67.00)*1,00,000 = INR 1,50,000
Margin will get released
Month End – On the same day Sell USD to bank @ Spot 67.00
Case II
Assume USD/INR – 63.50 (RBI Ref Rate)
Profit = (65.50 – 63.50)*1,00,000 = INR 2,00,000
Month End – On the same day Sell USD to bank @ Spot 63.50
Exporter locks his inflows at 65.50 or INR 65,50,000 using currency futures.
CDS Segment Data
You can find the data of Currency Derivatives Segment on below links:
What is BCD?
BCD means BSE Currency Derivatives. You Trade which you will take in BSE will shown in BCD segment.
Conclusion
CDS Segment is used by majorly exports and importers. However, If you have interest in Currencies you can also try to trade in this segment. However, always consider the risk of loss while trading in the Currency Derivatives Segment.
This is all from our side regarding what is cds and bcd? Although, if you have any doubts about what is bcd and cds in currency trading you can just comment below and to open account with Zerodha click here
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FAQ About what is cds and bcd?
CDS segment in Zerodha?
CDS segment in Zerodha is Currency derivatives Segment of NSE.
What is cds and bcd in currency?
CDS is Currency derivatives Segment on National stock Exchange. Whereas BCD is the Currency Derivatives Segment on the Bombay Stock Exchange.
CDS and BCD difference?
CDS is Currency derivatives Segment on the National stock Exchange. Whereas BCD is the Currency Derivatives Segment on the Bombay Stock Exchange.
What is CM segment in NSE?
A NSE Clearing Member (CM) is responsible for clearing and settling all deals conducted by Trading Members (TM) on the NSE, who clear and settle such trades through them.
What is CDS in Zerodha
CDS segment in Zerodha is Currency derivatives Segment of NSE.
