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Wednesday, November 16, 2016

Currency Trading


Currency Trading on Exchanges



Many punters have been making the most of the pound sterling's multi-year fall against the dollar by shorting it on the currency segment of the NSE.

Though they can't take a direct dollar-GBP position on the exchange they can `sell pound buy rupee futures' or `sell rupee buy dollar futures' in the first leg and `sell pound buy rupee futures' in the second leg. This is a surrogate bet on dollar pound. However, most use the first strategy (sell pound buy rupee futures) and have had the going good.

1. Can I trade the CD segment on stock exchange?


Yes, if you have a stock trading account. As you don't take delivery there's no question of a demat account in CD (currency derivatives) with trades being cash settled in rupee.

2. What have traders done?


In the futures market for every buyer there is a seller and so it's a zero sum game. Peter's loss is Paul's profit. Those who shorted the GBP against the rupee have made a tidy profit.

3. What's the deal?


If I hold a negative view on the GBP , I short the GBP-rupee futures contract. This means I sell GBP and buy rupee. If the GBP trades at 82 to the rupee and I feel it will fall I just sell at 82. If it falls to 81 (rupee strengthens) by say end of October contract (October 26), I make 1,000 rupees per lot (1,000 pound contract) because I can still sell at 82 to the long pound counterparty .But if GBP rises to 83 (rupee weakens), I lose 1,000 rupees when I buy (pound) back to square off the trade.

4. How has the pound fared versus the rupee?


GBP futures expiring October 26 have fallen almost 5% to 81.81 versus rupee in the two weeks through Friday . Assuming a client put up 5% margin or `4,305 to trade 1 lot (sell GBP-Re) two weeks ago, he made a profit of `4,300 or almost 100% return on gross basis, ex brokerage, etc. Over the period open interest declined implying those who purchased the pound covered their short-rupee positions.

5. What are the other cross currency pairs?


Most liquid is dollar-rupee fu tures and options. Only futures exist in yen, euro and GBP . While a client can take 15 million USD without having underlying exposure in dollar-rupee, she can take only 5 million USD across pound, yen and euro without having underlying exposure.








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