CURRENCY FUTURES

India’s biggest stock exchange will start trading in currency futures on August 29, the first time the product has been made available in the subcontinent and a move long awaited by the local financial community.

“For the first time in India, it will be possible to trade on currency futures on an exchange platform,” said the National Stock Exchange, which earlier this month received an in-principle approval from India’s stock market regulator to offer the derivative contract.

The NSE’s announcement was welcomed by market players because the contract will make it easier for bankers, brokers and private investors to interact in the currency market and to hedge their foreign exchange risks when trading.

However, common man is yet to get acclimatized with Currency Futures in general and particularly with advantages it provides.

For a common-man in India, question of handling forex rarely arose in the past until as late as early 21st Century. Indian economy has grown rapidly during the last few years. India is one of the top global economies.

Nowadays it is common to find Indian residents often looking out for hedging currency risks. Unlike in the past, a large population of India (common-man) earns huge amount of foreign exchange from overseas.

INR has seen huge fluctuations of around 10% in its price against USD in a span of less than one year. Indian financial markets offered very few options such as currency forwards, swaps and options (traded on OTC - over the counter market) to Indian investors for hedging their currency risks.

Besides, cash Forex or OTC Forex trading is not easily accessible to small investors. Even more, it was suitable to only large participants due to various factors that acted as the deterrent to retail investors.

NSE (National Stock Exchange of India) was the first recognised exchange to launch currency futures trading in India. Currency futures offer unique advantages over overseas forex trading to retail investors and small traders.