Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

How to Hedge your Export and Import with NSE Currency futures – Part I

3 min read

On a daily basis, the current Indian currency market accounts for 1% of the world’s Forex transactions, which makes it $4 trillion. As the currency derivatives were introduced in the year 2008, Indian currency market has started to grow further in the race of world Forex trade. In 2010, the entire spot transactions involves rupee totalled to almost $30 billion, besides, with the segment that accounted for a good share of 40% in the entire Forex turnover in India. Alongside, Forex swaps and outright forward transactions are another reason that gave the necessary push to the Forex trade.

 

Initially, the currency market in India saw a lot of revolution. This was the beginning of the era which marked the transparent trading mechanism in currencies which was new to the market that aimed to limit the losses in businesses due to the risks involved with the currency movements. Slowly as the understanding increased about the advantages that currency trading, the volume on stock exchange started increasing. As per the reports, where the monthly turnover on the currency exchange was Rs. 30, 000 Crore from January to June 2012, the monthly turnover considerably increased to Rs. 45, 000 in the next year, 2013. The figure is constantly growing and for the matter of fact, the average monthly volume jumped up to Rs. 63, 000 Crore.

CurrencyTrading

There are several factors that play a crucial role for the increase of the currency trade, which includes interest and awareness about the trade among people the broadening scope of the stock markets internationally.

USD-INR pair- the global trading opportunity

For several exchanges across the world, USD-INR pair is traded internationally including Singapore Exchange, Bahrain Stock Exchange, Dubai Gold and Commodities Exchange and Chicago Mercantile Exchange. It has been observed that the availability of USD-INR pair will definitely lift the Indian currency in the world Forex Market.

In India, the initial currency market started with the USD-INR pair. However, as the growth of the Indian currency market increased and the people participation have increased quite many folds, currency futures in India is demanding the launch of other major pairs such as JPY-INR, EUR-INR to name a few. The currency market is highly interconnected with each other and as a result fall in other currency also affects the Indian currency directly or indirectly. As a result, businesses and organization that deals with other currencies such as Yen, Pound or Dollar, they can still hedge position on currency futures to keep safe from the unpredictable currency movements.

Apart from the financial institutions and banks, Indian residents are also to participate in the currency futures. As of now, NRI’s (Non Residential Indians) and Foreign Institutional Investors (FII’s) are not allowed to invest in the currency futures. But with the increase in the trade, their participation in the Indian market could get the approval of acceptance in the coming days, which would certainly contribute the Indian currency market even bigger.

Features that makes Currency futures Lucrative

There are several features that are actually responsible for making the Currency market lucrative and a potential platform for investment. Features such as high liquidity, price mechanism that offers to hedge, lower margins and electronic settlement are the core reasons which support the growth of it.

People those who are into import and export business, the creation of hedge on the currencies future platform can eventually help in cutting down the risk involved with the volatile currency movements, for instance the unexpected movements in rupee.

Also, as it is traded on the exchange, a very important benefits that traders get, is an opportunity to trade in contracts that are small as compared to that in the forward market. The small contract that is available with this trade invites investors with minimum capital base to invest in the trade. As a result, investors, irrespective of their capability to invest can get benefitted from trading on the currency futures platform. Besides, the currency features are marked to market on a daily basis, an investor can easily buy or sell a currency pair without waiting for the expiry of the contract.

People who can get benefited from Currency Future

Other than exporters and importers, people who can invest in this trade and get benefited are travellers, students studying abroad and retail investors. Apart from that, anyone with good knowledge about Forex can also get benefited from this market.

Due to currency vitality, most of the times, people who are working as freelancers or with Google Adsense  are also highly affected, as that is also a part of the export category. Therefore by utilising the benefits of NSE currency futures, it lowers the risk of being in loss during the time the currency hits the rock button.

For instance, students who are going abroad for their studies will have to pay more for their educational purposes due to fall in rupee, therefore in such a situation it is interesting to use the currency futures as a platform in order to lower the foreign currency risk, which would actually help them during uncertain financial movements.

Even for the retail investors, currency futures have opened the gateway for a further investment portfolio and as an instrument to involve in speculation.

The current financial integration is a reason for the volatility in currencies. As a result, one must understand that it is important for the organization to get affected by currency futures to hedge and in order to cover up for the risk.

(to be continued….)

Rajandran R Founder of Marketcalls and Co-Founder Algomojo. Full-Time Derivative Trader. Expert in Designing Trading Systems (Amibroker, Ninjatrader, Metatrader, Python, Pinescript). Trading the markets since 2006. Mentoring Traders on Trading System Designing, Market Profile, Orderflow and Trade Automation.

USDINR Positional Pullback Trade Setup

USDINR enters into the stage of positional longs on 4th May and till to date continues its sideways journey for the last 4 trading...
Rajandran R
1 min read

Difference Between Binary Options vs Regular Vanilla Options and…

A Binary Option is a financial instrument based on a simple yes or no question where the payoff is a fixed amount or nothing...
Aniket Kale
3 min read

Things you need to know about China’s Digital Yuan

China has begun trial of its new digital currency “e-RMB”, in four of its major cities. A full-fledged launch could be expected in May...
Aniket Kale
1 min read

2 Replies to “How to Hedge your Export and Import with NSE…”

  1. Sir, I am fresher for commodity your market calls chart very useful for watching accuracy in market Long live sir

  2. Very useful article on currency futures, hope these insights would continue. I think currency trading is bit different from equities and a thorough understanding is important before starting , your articles provide insights equally to novice and experienced traders.

    http://www.technicalanalysissimplified.com

Leave a Reply

Get Notifications, Alerts on Market Updates, Trading Tools, Automation & More