Higher integration of global economies and global trade led to rise in more foreign exchange transactions. The rise in transactions led to heavy fluctuations in currency prices providing market for forex trading. The currency trading offers strong potential of making profit out of heavy fluctuations in currency prices in many circumstances of the market. The currency market has become more vibrant in terms of trading and rise in global trade . Many times governments too intervene in the forext market to save the domestic currency from falling. They do with the help of central banks who sell excess foreign exchange to save the domestic currency from falling further. Forex markets are highly volatile in normal market conditions too.
Benefits of Currency Trading with Mangal Keshav:
- Expert Advisory on currency trades
- Liquidity support
- Robust technical reports
- All time access to back office support
What are currency derivatives?
Derivatives indicates the underlying assets which derives the price of derivatives. Similarly, underlying securities can be any such as stocks, commodities, currency , indices, etc. In terms of currency derivatives the underlying asset or security is currency exchange rate of a particular currency with some foreign currency. The derivatives of currency are used as hedge to the risk of change in actual exchange rate and minimise the loss arising out of it or negate the loss. The currency derivates are also used for speculations and arbitration purpose too.
How the currency prices are determined?
Like any other good the price of currency is also determined by the demand and supply of the currency in the foreign exchange market. However, the factors leading to the change in demand and supply of currency are different and players creating the demand and supply are also different. A domestic currency is an indicator of how strong economy is doing and the stability of the economic growth of the country. The factors affecting the change in prices of currency are interest rates, inflation rate, international trade, economic and political stability, etc. The players who define the demand and supply for currency are governments, central banks, big financial institutions, etc. When the domestic currency is losing its significance against a foreign currency, governments via central bank intervene by selling more forex reserves to assuage the domestic currency. Similarly, when domestic currency is to be purposefully depreciate against foreign currency for the benefit of exporters the governments flood the currency market with domestic currency. However, the scale and scope of forex market is huge which impedes a single player to manipulate the currency change.
What are currency futures contract?
Currency futures contract are the legaly binding agreements agreed to buy or sell the financial instruments in future time at agreed price. Currency future contracts are derived by time and the delivery of lots and the price is decided by the market forces. The contracts with pre-decided time frame will expire after the completion of the time.
What is the need of currency futures?
Currency is price is determined by the demand of that particular currency and the supply that currency in the exchange market. If you are a importer of a particular good and have bought the good from different country. By the time goods reach at your end the change in currency price downwards might make you loss for the goods purchased. Similarly, if you are a exporter and have exported your product at price and the due the currency fluctuation you are getting lower prices than today. To avoid or at least mitigate the losses from either cases the traders use currency futures contract as hedge to negate such losses caused to currency fluctuation.
What are pairs in exchange currencies?
Foreign currencies contracts are traded in pair of currencies. These pairs are of those widely used currencies in the global trades such as Euro/US, INR/USD,GBP/JPY, etc. Such pairs of currencies are widely traded on foreign exchange market. The US dollar is the most widely used currency in the global market for trade hence it has highest leverage against all major domestic currencies. Unlike the securities market , the forex market does not have central location or exchange per say. It operates through an electronic transactions via banks , corporations, individuals, traders.
What are factors impacting USD/INR currency rates?
As stated earlier that currency price is determined by demand and supply forces in the forex market. We will see how different factors change and affect the currency prices with respect to USD/INR
Exports
If exports from India rises the forex reserves of India will rise at will impact the forex of USD ( United states Dollar)/INR ( Indian National Rupee) by depreciating USD price against INR and appreciating INR’s value against USD
Rise in Price of Crude oil
Crude oil is the largest component of Indian imports, when the import cost rises the reserves of foreign exchanges depletes faster. Hence, when the price of crude oil rises the value of USD rises and value of Rupee depreciates against USD.
FII’s Buying back USD
Foreign investors bring the most of the inflow of foreign exchange into the economy. When they try to take out their investments in the country they try to take buying back USD. It leads to depreciation of USD and appreciates INR.
Common details about currency trading
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Market Timings |
Currency market is open from 9:30 am to 5:00 pm |
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Contract Months |
12 consecutive calendar months |
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Expiration Date |
At 12:30 Noon , two working days prior to the last Mumbai interbank settlement day
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Margin required |
for 1 Lot- 1.75% for first day & 1% thereafter. |
