Currency Derivatives are futures and options contract where you can buy or sell specific quantities of a particular currency pair at a pre-determined future date.

Currency Derivative Trading is similar to Stock Futures and Options trading. However, the underlying asset are currency pairs (such as USDINR or EURINR) instead of Stocks. Currency Options and Currency Futures trading is done in the Foreign Exchange markets. Forex rates are the value of a foreign currency relative to domestic currency. The major participants of Currency Trading in India are banks, corporations, exporters and importers.

Offers diversification to your investments--

Hedging opportunities to Importers & exporters, for their future payables and receivables.

Gives trading opportunities because of volatility in currency

Provides transparent rates to traders as it is exchange-traded


Forex Trading is done in currency pairs such as.

US Dollar –Indian Rupee Contract (USD-INR)

British Pound –Indian Rupee Contract (GBP –INR)

Japanese Yen –Indian Rupee Contract (JPY-INR)

Euro –Indian Rupee Contract (EUR-INR)

Hedging refers to taking a position in the future market which is opposite to a position in the physical market. Hedging is done with a view to reduce or limit the risk associated with unpredictable changes in the exchange rate.


A crude oil importer wants to import oil worth USD 1,00,000. He places the import order on 15 July 2015, with the delivery date being four months later. At the time of placing the contract one US Dollar is worth 65.50 Indian Rupees in the Spot market.

Let’s assume the Indian Rupee depreciates to INR 67.50 per USD by the time the payment is due in October 2013, then the value of the payment for the importer goes up to INR 67,50,000 rather than the original INR 65,50,000.

The hedging strategy for the importer at the time of placing the order would be:

Now :

Current Spot rate (15 July 2013) 65.5000 -One USD -INR contract size USD 1,000

Buy 100 USD -INR October 2013 contracts on 15 July 2013 (1,000 * 65.7000) * 100 (assuming the October 2013 contract is trading at 65.70 on 15 July 2013)

Later :

Sell 100 USD -INR October 2013 contracts in October 2013 at 67.50

Profit/loss (Futures market)= 1000 * (67.50 –65.70) * 100 = 1,80,000

Purchases in Spot market at 67.50

Total cost of hedged transaction (67.50 * 100,000) –1,80,000 = INR 65,70,000. (transaction costs not considered)

Had he not participated in the Futures market he would have to pay Rs.67,50,000 for the import.

A jeweller who is exporting gold jewellery worth USD 50,000 in July 2013 wants protection against possible Indian Rupee appreciation in December 2013, i.e. when he receives his payment. He wants to lock in the exchange rate for the above transaction.

His strategy would now be:

Sell 50 USD -INR December 2013 contracts (on 15 July 2013) 65.90 -One USD -INR contract size USD 1,000


Buy 50 USD -INR December 2013 contracts in December 2013 at 65.10

Sell USD 50,000 in Spot market at 65.10 in December 2013 (assuming that the Indian Rupee appreciated to 65.10 per USD by the end of December 2013).

Profit/loss from Futures (December 2013 contract) 50 * 1000 *(65.90-65.10)
= 0.80 *50 * 1000 = Rs 40,000

The net receipt in INR for the hedged transaction would be: (50,000 *65.10) + 40,000 = INR 32,95,000.
Had he not participated in the Futures market, he would have got only INR 32,55,000.

Short Hedge –

E.G. An exporter who is expecting a receipt of the US Dollar in the future will try to fix the conversion rate by holding a short position in the USDINR.

If exporter is expecting USD 1,000,000 after three months
Current Spot rate of USDINR is 48.0. If spot rate of USDINR becomes 47.0 after three months, then he will get only 47,000,000 after 3 months.

Long Hedge –

E.G. An importer who has to make payment for his imports in USD will take a long position in USDINR and thus fix the rate at which he can buy the USD.
While hedging, any losses incurred in the futmktwill be compensated by movements in the spot market. Converse is also true.

Speculation is to take risks and profit from anticipated price changes in futures price of an asset

A speculator will buy futures contracts(long position) if he anticipates an increase in the price of the currency in future and vice versa.

Example :

Hold a long position in Base currency if you expect it to go up in value.
E.g. Buy USDINR if you expect the US Dollar to gain in the future.

Hold a short position in Base currency if you expect it to go down in value.
E.g. Sell USDINR if you expect the US Dollar to lose value in the future.

Currency Future enable the trader to benefit from leverage.
Downside risks are however greater.

Existing one电竞(新疆)在线登录 securities customer :

Register for Currency Derivative Trading by signing up with :

Duly signed Activation form with Trading Account details available on

Annexure 2 (Letter of Confirmation)

Attached Any one financial document

Bank account Statement

Copy of demataccount holding statement

Salary Slip

Copy of Form 16 (incaseof salary income)

Copy of ITR Acknowledgement


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