Basics of Currency Futures Trading

The forex market is a market where one currency is traded for another. The average daily turnover in global forex and related markets is in trillions of US dollars. The spot exchange rate refers to the current prevailing exchange rate at which a currency can be bought or sold for another. Forward exchange rates are those quoted and traded for future delivery of underlying currencies and payment.
                                                           
The forward rates are different from spot rates depending on market sentiments and expected future conditions. Typically, the pricing of a currency forward contract is determined by the prevailing spot rate and interest rates differential of the respective countries for a specified date in the future.

Forward Rate = Spot rate +/- Forward points
(i.e. benefit/disadvantage of holding a currency for a specified period of time)
The forward contracts are customized bilateral agreements between two counterparties agreeing to buy and sell the underlying on a specified future date at a specified rate.

A currency futures contact is a standardized version of a forward contact traded on a regulated exchange. it is an agreement to buy or sell the underlying currency, on a specified date in the future at a specified rate. Unlike a derivatives contract, the underlying for a currency futures contract is a currency. The exchange's clearing house acts as a central counterparty for all trades and thus, undertakes the responsibility of performance guarantee.

Currency futures can be bought/sold on the MCX-SX through members of the Exchange, after opening a trading account and depositing stipulated cash/collaterals with the trading member.

Initially, monthly futures contracts for a maximum maturity of 12 months will be available on USDINR. The final settlement price would be the Reserve Bank Reference Rate on the date of expiry.
More Links
Introduction


Participants of Currency Futures Market


Basics of Currency Futures Trading


How to Trade on
MCX-SX?


Risk Management Strategies
Background to MCX-SX
Contract Specification of USD-INR Futures


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