What is Currency Trading?

Like stocks and commodities, currencies have futures Contracts that allow you to buy or sell the underlying currency, at a fixed price, at a future date. You can execute contracts to buy or sell the US$ for Indian Rupees, at a future date. These contracts are the derivatives of the Currency Market.

The launch of currency derivatives in India, in May this year opened one more lucrative avenue for trading. The recommendations were made jointly by the SEBI and the RBI.

Currency derivatives can be described as contracts between the sellers and buyers, whose values are to be derived from the underlying assets i.e. the currency amounts.


  • Only USD-INR contracts are allowed to be traded.
  • The size of each contract shall be USD 1000.
  • The contracts shall be quoted and settled in Indian Rupees.
  • The maturity of the contracts shall not exceed 12 months.
  • The settlement price shall be the Reserve Bank's Reference Rate on the last trading day.

Advantages of Currency Futures:

  • Easy Accessibility: Currency futures are being offered on the recognised exchanges in India.
  • Easy Affordability: Margins are very low and the contract size is very small.
  • Low Transaction Costs: In currency futures on NSE in India, you have to pay a small amount of brokerage fees and statutory duties and taxes. In overseas forex trading you have to pay commissions in the form of spread.
  • Transparency: It is possible for you to verify trade details on NSE if you have a doubt that the broker has tried to cheat you.
  • Efficient Price Discovery: NSE is well poised to offer efficient price discovery.
  • Counter-party Default Risks: All the trades done on the recognized exchanges are guaranteed by the clearing corporations and hence it eliminates the risks associated with counter party default.
  • Standardized Contracts: Exchange Traded currency futures are standardized in respect of lot size ($1000) and maturity (12 monthly contracts).

How can you gain by trading in currencies?

  • Speculation: Currency trading allows you to Speculate in currencies to make money out of your understanding of the market trends.
  • Hedging: Mitigate financial risks in exports through Hedging.
  • Arbitrage: Make risk free money through Arbitrage trading. Offered as pairs, Currency Trading is available for INR-US$ as of now, with the INR-Euro and INR-Yen expected soon to follow.

FOREX Market

The currency trading (FOREX) market is the biggest and the fastest growing market on earth. Its daily turnover is more than 2.5-3 trillion dollars, which is far greater than the NASDAQ daily turnover. The average daily turnover increased from US $23.7 Billion in March 2006 to US $33 Billion in March 2007.