Understanding your forex entitlements as per RBI guidelines
(Forex requirement will be serviced by any authorised dealers)
Major sources of supply of foreign exchange are:
Major sources of demand of foreign exchange are:
Currency Derivatives can be put to used for following purposes:
Hedging: Currency Derivatives can be utilized to protect the currency risk involved in any overseas business transaction (import, export, ECB, etc) to protect the business margins. e.g. An importer, who has to make a payment on a future date for the import purchases in USD, can buy USD for that future date, at rates prevailing in the market today. In this way he protects his business margins against exchange fluctuation risk.
Speculation: Fluctuation in exchange rates can be utilized to make profit/loss from short term moves in the market depending on the news, technical analysis, etc.
Arbitrage: the price Bid price of USDINR on NSE and Offer price on MCX-SX can be locked in to make profits.
Client has to register a Know Your Client (KYC) form along with required documents with us to commence the trading/hedging activity on currency futures. The list of the documents is provided below:
DOCUMENTARY REQUIREMENTS FOR NON-INDIVIDUAL CLIENTS: Copies of the following documents may be obtained after due verification with the originals thereof
DOCUMENTARY REQUIREMENTS FOR INDIVIDUAL CLIENTS: Copies of the following documents may be obtained after due verification with the originals thereof
Calendar spread means risk off-setting positions in contracts expiring on different dates in the same underlying.
E.g. , you take Buy position for 1 lot of FUT-USDINR-28-Sep-2010 @ Rs.50 and sell position for 1 lot of FUT-USDINR-28-Oct-2010 @ Rs.51. 1 lot of buy position in FUT- USDINR-27-Sep-2010 and 1 lot of sell position in FUT-USDINR-28-Oct-2010 form a spread against each other and hence are called "Spread Position". This spread position would be levied spread margin % for margin calculation instead of Initial Margin.
Contracts will be removed from the spread benefit 1 working day prior to the expiry of the near month contract. Therefore, client will have to provide full margin required on all position taken for positions forming a spread.
Once the trade executed has been squared off, the profit/loss is credited/ debited in the client’s trading limits.
Margins blocked on a trade position are released only after the Currency Future positions are squared off.
Net amount, after considering the following, is released:
Daily EOD MTM is a regulatory aspect of Currency futures Settlement Process. Every day the settlement of open Currency Futures position takes place at the Settlement Price declared by the exchanges for that day.
The Base price of the Open Positions is compared with the Settlement price and difference is cash settled the next day. In case of profit/loss in EOD MTM, Limits are increased/reduced by the amount of profit/loss net of applicable brokerage, taxes, statutory charges. The position is carried forward to the Next day at the previous trading day's Settlement price at which last EOD MTM was run.
Settlement price for all the contracts are provided by exchange after making necessary adjustment for abnormal price fluctuations. It is the weighted average price of the last half an hour trading on the exchange.
No. You need not square off your position till the contract expires. In case there is no instruction from client’s side, then position would be closed at the final settlement price as per the current regulations. The Final Settlement price shall be the Reserve Bank Reference Rate on the last trading day of such currency derivative contract, or as may be specified by the relevant authority from time to time. Margin blocked on such expired position will also be released and added into your trading limits after adjusting profit/loss, applicable brokerage, taxes and statutory levies on close out.
- Clients can use currency futures for hedging their exports and imports transactions by taking a buy/sell position for months in which remittances are to be made/ received. Particularly for small businesses it is boon as it has following advantages in comparison to OTC market (i.e. forward contracts booked with banks).
|BENEFITS OF HEDGING IN CURRENCY FUTURES PLATFORM|
|S. No.||PARTICULARS||HEDGING WITH FRR FOREX (CURRENCY FUTURES PLATFORM)||HEDGING WITH BANKS (FORWARD CONTRACTS)|
|1.||NARROW MARKET SPREADS||Very narrow Bid-Ask spreads available to all clients||Banks provide wide bid- ask spreads e.g. 3-4 paisa spread|
|2.||BETTER BROKERAGE||FRR FOREX charges a very minimal brokerage of 1 paisa/USD||Banks charge very huge brokerage of 3-4 paisa/ USD|
|3.||NO TRANSACTION CHARGES||Apart from brokerage there are no other charges||Banks charge Collection & Cancellation Charges|
|4.||ENEFIT OF NCIAL PREMIUM / IMPLI DISCOUNT||Benefit of Premium & Discount on currency is passed to client||Benefit of Premium & Discount on currency is NOT passed to client|
|5.||MARGIN REQUIREMENTS||FRR FOREX accepts margins both in cash & fixed Deposit It is as low as 5%-8% of contract value||Banks too accept margin in Cash & Fixed Deposit|
|6.||MINIMUM DOCUMENTATION||No Documentation required for booking futures contracts||Banks require either import/ export bills to book forward contracts|
|7.||EASE OF EXECUTION||Booking & Cancellation at your own wish||Banks generally don't allow cancellation of forward contracts|
|8.||EXTENDED TRADING HOURS||9:00 A.M. to 5:00 P.M. Market Availibilty||9:00 A.M. to 4:30 P.M. Market Availibilty|
|9.||SMALL LOT SIZE ORDERS||Minimum lot size of 1000 USD, 1000 EUR, 1000 GBP||Minimum lot size of USD 1 mio, EUR 1 mio, GBP 1 mio|
- Commodity traders can use currency futures to hedge the USDINR risk involved in the Gold and Crude prices traded on bourses in India.
- Money changers and remitters can hedge their currency stock by using currency futures.
- Any remittances made or received from abroad in form of salary, commission, remuneration, royalty can also be hedged using currency futures.
- Loans for education, remittance of living expenses can also be hedged.
You can have following two Settlement obligations in Currency futures market:
i. Daily Settlement Obligations:
Daily settlement obligations arise due to the following:
. Pay-Out/Pay-In due to Profit and loss on squared off position.
. Pay-Out/Pay-In due to Profit and loss on EOD MTM of open position
. Pay-In due to Brokerage and statutory levies
. Pay-In due to applicable Taxes
i. Daily Settlement Obligations:
. Pay-Out/Pay-In due to Profit and loss on close out
. Pay-In due to Brokerage and statutory levies on close out
. Pay-In due to applicable Taxes
The statutory charges are as follows: