Currency Trading through Acumen Group

Currency Futures were launched in India on August 29, 2008. Acumen offers Currency Futures trading through National Stock Exchange (NSE) and MCX Stock Exchange (MCX-SX).

What are Currency Futures?

Currency Futures is a standardized foreign exchange derivative contract on a recognized stock exchange to buy or sell a standard quantity of one currency against another on a specified future date at a specified price.
It allows clients to take a view on the movement of the exchange rate as well as hedge against currency risk. Clients can use Currency Futures as a trading, investing and hedging tool. Currently only USD-INR contracts are available for trading.

What is the difference between Futures and Forwards?

Futures are Exchange traded contracts whereas Forwards are over-the-counter (OTC) contracts. Futures are standardized with respect to quantity, quotation method and date of expiry whereas Forwards are tailored to meet the needs of the individual customers. As futures are exchange traded the counter party risk is minimal.
Marking to market is done at the end of every trading day in future market while no such adjustments is carried out in forward market.

Why Currency Futures?

• Hedge exposure in an underlying currency against the adverse Foreign exchange rate movement. Allows hedge for near 12 months.
• Financial Leverage. Use of margins to trade.
• Efficient management of funds. Due to daily MTM.
• Small contract lot size of USD 1000. Clients can customize the trade size to suit their requirements.
• All the trades are done on the recognized stock exchanges and guaranteed by the
  clearing corporations and hence it eliminates the risks associated with counter party default.

Qualifying Clients

Only ‘persons resident in India’ may purchase or sell currency futures to hedge an exposure to foreign exchange rate risk or otherwise. Any resident Indian or company including banks and financial institutions can participate in the currency futures market. At present Foreign Institutional Investors and Non-Resident Indians are not permitted to participate in the currency futures market.

Market Participants

There are three categories of market participants in the Currency Futures Market:
Hedgers use Currency Futures to protect an existing portfolio (or an anticipated investment) against possible adverse movement. Hedgers have a real interest in the underlying currency. They use futures to reduce their risk and protect their profits in the underlying activity.
Investors use Currency Futures as an instrument for investment in the hope of making a profit in the medium and long term. They have no interest in the underlying currency other than taking a view on the future direction of the currency price. Day traders have also been attracted by an opportunity to trade in Currency Futures.
Arbitrageurs profit from price differential of similar products in different markets, e.g. price differential between the outright exchange rate and the futures price.

Features of Currency Futures contract

Contracts are traded in the multiple of 1 lot. 1 lot = USD 1000. Contract months

The contract months for Currency Futures are near 12 calendar months. Each contract is identifiable with its month of expiry, e.g. the May 2010 contract is shown as USDINR 270510.

Quotation Method

Currency Futures are quoted in INR per USD up to four decimal places for a particular maturity, e.g. 1 USD=47.9525 INR

Tick Size

The minimum price movement up or down is by INR 0.0025 (quarter of a paisa), which results in the value of one contract moving up or down by INR 2.50.

Last trading day

Last day for trading of the contract is two working days prior to the final settlement day. Settlement
The Currency Futures contracts are cash settled in INR. No physical delivery of the underlying currency takes place.

Settlement Price

Settlement price of a contract is the USD-INR Reference Rate given by the Reserve Bank of India on the last trading day of that contract. As RBI Reference Rate is fixed at 12:00 noon, effectively the contract for that month stops trading at that time on the last trading day.

Final Settlement Day

Last business day of a month for inter-bank forex settlement in Mumbai, as per FEDAI guidelines, is the final settlement day for that particular month’s contract.
Timings

9:00 a.m. to 5:00 p.m. Monday to Friday.

Holidays

Holiday list is published by respective exchanges. Generally, the Currency Futures segment holidays and the forex market holidays at Mumbai are same.

Margining

Trading on exchange ensures that there is a buyer and a seller to each contract traded. The clearing house becomes the counter party in all trades once each transaction has been matched and confirmed. The clearing house therefore ensures settlement of each trade. Margining is an important process through which performance of contracts is enforced. The trading open position of the client will be based on his available margin.

Initial Margin

When a position is initiated either short or long, the client is required to pay an initial margin. The minimum initial margin is calculated as 1.75% on day one and 1% thereafter. Margins are calculated by exchange using SPAN.

Calendar Spread

When a Currency Future position of a particular maturity is hedged by an offsetting position of a different maturity, Rs. 250/- Calendar Spread Margin is charged.

Extreme Loss Margin

Extreme Loss Margin is computed at 1% of the MTM value of the gross open position.

Marked-to-Market

The exchange values each position daily at the close of each business day and this process is known as Marking-to-Market. At the end of each trading session, the system calculates the dosing price as the weighted average price of all the trades done during the last 30 minutes of the trading session. Any difference from the previous day’s MTM price is either paid to the clients or paid by the clients in INR.

How to close a trade position?

Currency Futures position is closed out by entering into an equal but opposite transaction. Those who entered either by buying (long) or selling (short) a futures contract can close their contract obligations by squaring-off their positions at any time during the life of that contract by taking opposite position in the same contract.

A long (buy) position holder has to short (sell) the contract to square off his position or vice versa.

Clients will be relieved of their contract obligations to the extent they square off their positions.

How to roll over a position?

All clients who wish to hold their positions beyond the expiry date of the contract will be required to roll their positions over into other desired maturity contracts. In other words if a client holding a long February contract needs to roll over his position to let us say June contract then he would have to sell the February contract and buy a June contract and the margin would be adjusted. Technically, it amounts to unwinding of an existing position and entering into a fresh one.

Contracts are automatically closed out on expiry

All contracts that have neither been closed out nor rolled over before expiry will be automatically closed out by the exchange at 12:00 noon on the last trading day of that contract.

Trading Requirements

To complete KYC form, Client Agreement and other required documents
Read and understand fully the exchange provided Risk Disclosure Document for currency derivatives segment and Investors’ Rights and Obligations.

Acumen Advantage

• Online Back office support free to clients.
• Online trading
• Young & dedicated team with “I Can attitude”
  Web based currency futures trading platforms - NOW (Neat on Web).
• for NSE and ODIN for MCX-SX brought to you through CF CONNECT.

Currency Futures Contract Specifications