Currency Futures in India | USD INR Futures
Meaning of futures: Future is a type of derivative financial instrument that provides an opportunity for the investors to exchange an underlying asset at a fixed price at a future date which is predetermined today. The investor can trade the underlying asset on the expiry date at the predetermined price regardless of what the current market price is. These are used for speculation or hedging purposes.
Types of Futures contracts
Various types of futures are available in the market:
- Currency futures
- Commodity futures
- Stock index futures
- Interest rate futures
- Individual stock futures
Meaning of currency futures
Currency future is an exchange-traded futures contract that determines the price of one currency at which another currency can be bought or sold at a future date. These are legally binding contracts. They are usually used for hedging or speculation activities.
Are currency futures popular in India?
The currency futures were introduced in 2008 in India and since then, the value and volumes have increased steadily. In 2019-20, NSE posted a total turnover of Rs. 41,10,022.58 crores in the currency futures section while the total turnover for the currency derivatives was around Rs. 82,67,678.23 crores. The development in the segment can be measured by the steady increase in the turnover over the years. The total turnover in the currency futures segment in 2008-09 was Rs. 1,62,272.43 crores which rose to Rs. 37,65,105.33 crores in 2012-13 and then to Rs. 46,54,927.35 in 2018-19. The growth in the currency futures market shows the higher demand for price transparency among the investors. The traders in India including both exporter and importer, in genuine have the need to hedge their risk against currency fluctuation.
How to trade in currency futures?
NSE and BSE both have a currency futures segment. Even the Metropolitan Stock Exchange of India (MSEI) has a currency futures segment. All the leading brokers play a major role in this market and one can trade through them. It is very similar to trading in the stock market, the only difference is that the underlying asset, in this case, is a currency cross, i.e., USD INR, instead of normal stocks. Trading can also be done through a trading app of any of the brokers.