Frequently Asked Questions
What are Currency Futures
Currency Futures are standardised foreign exchange derivative contracts
on a recognised 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. The Reserve Bank of India
(RBI) has permitted the recognized stock exchanges to offer Currency
Futures (CF) contracts in the currency pairs of USD-INR, Euro-INR,
Japanese Yen (JPY)-INR and Pound Sterling (GBP)-INR. Axis Bank offers
trading in currency futures in all permitted currency pairs.
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. Futures are marked to market
(MTM) every day.
What is the Eligibility for trading in Currency Futures ?
Only 'persons resident in India' may trade in 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.
What are the Benefits of trading in Currency Futures
Currency Futures trading is in a fully regulated and transparent
market place.
It does not require one to have an underlying exposure
in foreign currency.
If the Client has an underlying exposure in
the foreign currency, Currency Futures can be used effectively to
hedge the same. It allows hedge for near 12 calendar months.
Currency
Futures provide investors with access to a new asset class for their
portfolio, i.e., Forex.
Margin trading in Currency Futures allows
leverage of funds as it involves buying Currency Futures without having
to pay for the entire value of the contract.
Daily settlement of
Marked to Market pay-in and pay-out encourages disciplined trading.
Smaller and more affordable contract lot size enables a large number
of players to enter the market.
All the trades are done on the recognized
stock exchanges guaranteed by the clearing corporations and hence
the risks associated with counter party default are eliminated.
Electronic Trading platform is made available for Currency Futures
Trading. Without access to a computer, one can also do trades by calling
Axis Bank Dealing Room and placing orders with the dealers who will
inturn place orders on the Exchange trading platform on the Client's
behalf.
Currency Futures are cash settled and offer convenience
to trade.
Who are the 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 Currency 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. 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 OTC (Over the Counter) rate and the futures price.
