Currency trading is the act of buying and selling international currencies. Reserve bank of india forex trading 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. Cost of carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. For currency derivatives carry cost is the rate of interest. Initial margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin. Marking-to-market: In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor’s gain or loss depending upon the futures closing price which is known as marking-to-market. Some of the liquid currencies in the world are USD, JPY, EURO, GBP, and CHF and some of the liquid currency contracts are on USD-JPY, USD-EURO, EURO-JPY, USD-GBP, and USD-CHF.
News and information regarding a country’s economy can have a direct impact on the direction that the country’s currency is heading in much the same way that current events and financial news affect stock prices, hence the importance of economic factors. Who can trade in Currency Futures markets in India? Any resident Indian or company including banks and financial institutions can participate in the futures market. Any currency can be traded on the international level. 4 major currencies are traded against the Indian Rupee.