Investors aim to expand their portfolios by using various financial instruments for two reasons: to reduce uncertainty and maximize return on investment. Currency is a safe opportunity and cross currency trading will help you raise your profit margin. Cross Currency Trading in India has just started in 2020 in India.
Table of Contents
Introduction
The Forex futures market is the most popular market outside of India. All trades the forex futures markets, from retail to financial institutions. If you take a closer look, you’ll notice that the most commonly traded currency futures are
- EUR – USD
- GBP USD
- USD JPY
According to a BIS report, USD accounts for approximately 88 percent of international Forex transactions, with EUR USD, GBP USD, and USD JPY accounting for 50 percent of trades. As a result, you should have a better understanding of the significance of these contracts.
History
Cross-currency trade began in the post-World War II period. When countries became more involved in foreign trade, the need for a single currency that could be used as a metric emerged. To ensure price stability in the foreign market, various currencies may be converted against it.
Following WWII, the United States’ economy flourished as among the strongest in the globe and as a result, it became the benchmark for currency conversions in foreign exchange.
As a consequence, those wishing to exchange funds and convert it to a foreign currency must always convert it first to US dollars, then to the currency of their choosing. Now let’s talk about Cross Currency Trading in India.
Cross Currency Trading in India
Under the complete legal environment, the National Stock Exchange has formally announced cross-currency futures and options to be executed on the exchanges. On the NSE, you can trade any of the above listed currency futures & Options.
Whenever you encounter a currency pair, such as EUR/USD, the first currency is known as the Base Currency, and the second currency is known as the Quote Currency, and the currency pair is often quoted in the quote currency.
For instance
If the price of EUR/USD = 1.23421 is shown, it means that 1 EUR equals 1.23421 US Dollars.
Take a view of the table ahead for more details:
| Currency Pair | Base Currency | Quote Currency |
|---|---|---|
| EUR USD | EUR | USD |
| GBP USD | GBP | USD |
| USD JPY | USD | JPY |
Also, presume this is for EUR USD, and here is a common order book:
| Bid Price (rate at which you purchase) | offer Price (rate at which you sell) |
|---|---|
| 1.2451 | 1.2449 |
| 1.2439 | 1.2437 |
| 1.2465 | 1.2262 |
| 1.2440 | 1.2438 |
| 1.2428 | 1.2426 |
So, if you want to purchase the EUR USD, you’ll have to pay USD 1.2451 for one EUR. Similarly, you are able to sell 1 EUR for 1.2449 USD if you wish to sell according to cross currency trading time in india.
Futures Contract
On these foreign currencies, the NSE has launched both futures and options. The favorite aspect is that the lot size is set at 1000 units of Base currency for all three currency pairs. The following is how the lot size is determined:
| Currency Pair | Base Currency | Quote Currency | Lot Size |
|---|---|---|---|
| EUR USD | EUR | USD | 1000 EUR |
| GBP USD | GBP | USD | 1000 GBP |
| USD JPY | USD | JPY | 1000 USD |
It’s significant to mention the lot size standard, and you’ll see why a little later.
The EUR USD/GBP USD tick/pip will operate at 0.0001 and the USD JPY tick/pip will operate at 0.01.
Trading will be open for 12 monthly contracts. Near-month contracts will expire two days before the month’s final business day.
Option Contract
The options contract is structured similarly to the USDINR options that are currently traded on the exchange. The contract details are listed below.
- Option expiry type – European
- Premium – Priced in the same currency as the quote currency (USD for GBPUSD EURUSD and JPY for USD JPY)
- Contract Period – There will be three monthly and three quarterly contracts. Three consecutive monthly contracts will be accompanied by a quarterly contract per three months.
- Available strikes – There are 12 in-the-money strikes, 12 out-of-the-money strikes, and one near-the-money strike open. So there are approximately 25 strikes accessible for you to select among.
| Basic | Euro US Dollar | Pound – US Dollar | US Dollar – Japanese Yen |
|---|---|---|---|
| Strike Price Interval | 0.006 | 0.006 | 0.51 |
Expiry of nse currency trading
All approaching month contracts will expire two days before the month’s final business day at 12.30 PM. will be settled at the price agreed upon in the final settlement.
Futures contracts will be put to market and cash-settled in T+2 days at the ultimate settlement price. The final settlement amount will be used to measure the inherent value of all in-the-money contracts.
Let’s look at an instance to better understand it.
| Final Settlement Value for EUR USD | 1.3752 |
| Put Strike Value | 1.3761 |
| Exercise value per contract(USD) | 0.9 |
| RBI Reference rate for USD at 12.30 PM | 65.2361 |
| Exercise Value for the contract(INR) | 58.71249 |
Margins
An preliminary margin of 2% of the contract value and a severe loss margin of 1% would be applied to all contracts traded.
The margin barred will be in Local Currency, but the currencies will be exchanged in the quote currency (USD or JPY), and the margin blocked will be converted.
All trades executed before 02:00 PM will use the prior market day’s base rate to block margins, while trades executed after 02:00 PM will use the current market day’s benchmark rate.
Spreads in currency trading in india
A calendar spread is a futures position in a expiry month that is hedged by an offsetting position in a separate expiry month, as discussed in this article. The spread margins are set by the exchange and are non-negotiable:
| Spread Period | Margins |
|---|---|
| 1 month | INR 1500 |
| 2 month | INR 1800 |
| 3 month | INR 2100 |
| 4 month | INR 2400 |
Risk of cross currency trading
Interest rates play a significant role in evaluating the risks associated with cross currency trading, especially carry trades. Furthermore, since settlements are not always made in the same currency as the transactions, profits can differ.
Search for pairs that do not show volatility against the US dollar when pairing currencies for trading, as they will normally act in a non-volatile manner towards one another too.
It helps traders to benefit from interest rate differentials between countries as well as exchange rate variations. However, since it entails high volatility, it takes some experience to trade with trust.
Conclusion
However, in order to transact effectively in the currency market, you must combine your experience with your abilities.
This is all from our side regarding Difference Cross Currency Trading in India. Let us know your views in the comment section.
Other Interesting blogs related to Cross Currency Trading in India.
How to Start Forex Trading In India?
FAQ About Crosss Currency Trading In India
Cross currency trading time in India?
Normal Currency Market Starts at 09:00 am and closes at 05:00 pm.
How to enable currency trading in Zerodha?
You need to select the income range, and upload your income proof and segment will be activated within 24 to 48 hours.
can i trade eur/usd in india?
Yes, You can trade EUR/USD in India via most of the trading platform in India.
Cross currency pairs?
There are 3 Pairs available in India EUR-USD, GBP-USD and USD JPY.
Punishment for Forex trading in India?
There is no Punishment for Forex Trading in India.
