Currency trading is the act of buying and selling international currencies. Very often, banks and financial trading institutions engage in the act of currency trading. Individual investors can also engage in currency trading, attempting to benefit from variations in the exchange rate of the currencies. Its daily turnover is more than 2. The exchange rate is a price – the number of units of one nation’s currency that must be surrendered in order to acquire one unit of another nation’s currency.
Various terminologies in currency market: Spot price: The price at which a currency trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The currency futures contracts on the SEBI recognized exchanges have one-month, two-month, and three-month up to twelve-month expiry cycles. Hence, these exchanges will have 12 contracts outstanding at any given point in time. Final Settlement date of each contract.
Expiry date: It is the date specified in the futures contract. The last day for the trading of the contract shall be two working days prior to the final settlement date or value date. Basis: Basis can be defined as the futures price minus the spot price. In a normal market, basis will be positive. Futures prices normally exceed spot prices.