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The currency and commodities spot currency option trading in india is largely a Futures market; hence a working knowledge of these derivative instruments is the key.
Now, assuming you understand these concepts fairly well, let us begin by slicing and dicing the USD INR futures contract. One can initiate a short trade based on this, keeping the high of the Marubuzo as the stoploss.
Therefore on a contract size ofthis works out to —. In contrast to equities, the margin charged in currencies is way lower. This should give you a sense of how leveraged currency trading really is. On the other hand, currency sticks to a tight trading range compared to equities. Notice how the currency futures are quoted — they go upto the 4 th decimal digit.
There is a reason for this — when it comes to currency futures, a number as small as this — 0. When RBI states the reference rate, they quote upto the 4 th decimal. Even a minor difference at the 4 th decimal can alter the foreign reserves by a large degree.
Well, this should be easy to figure out —. After initiating the short, the currency pair declined If I choose to close this position, he is how spot currency option trading in india I would make —.
This could be a bit tricky, do pay attention. A pip as you know is the minimum number of points the currency can move. To know how many pips a currency has moved when it moved by 0. As you can see the trade spot currency option trading in india to capture 36 pips, et us now calculate how much money one would make —.
Remember this is an intraday trade. What if you were to carry this forward to expiry? Well, we can carry this forward as long as we maintain the adequate margin requirements.
The July contract will stay in series 2 days prior to the last working day of the month. So 29 spot currency option trading in india July happens to be the last working day of the month, hence 27 th July will be the expiry of this series.
In fact you can hold the contract only till So for example if I hold this position till And this money will be credited to my trading account on 28 th July Needless to say as long as you hold the contract, your position will be marked to market M2M.
This is similar to the way it works for equity futures. Hopefully this example should give you a spot currency option trading in india of how the logistics for the currency futures work. Hopefully going forward we could see option spot currency option trading in india on other currency pairs as well. While most of the parameters are similar to the future contract, there are few features specific to option contracts.
Contract cycle — While the future contracts are available for 12 months forward, the option contracts are available just 3 months forward. This is similar to equity derivatives. So, since we are in July, contracts are available for July, August, and September. So this is roughly 25 strikes available for you to pick and choose from.
Of course, more options are added based on how the market behaves. Strikes are available at every 0. Have a look at the following image —. Usually this information is made available in the quote for equity derivatives.
Now, if you were to buy this option, what would be the premium outlay? Well, this is fairly easy to calculate —. The option contract works similar to the equity derivative contracts. Here is an another snapshot I captured —. Spot currency option trading in india you can see, the premium has shot up, and I can choose to close my trade right away. If I did, here is how much I would make —. Well, you know that option selling requires you to deposit margins. In the next chapter, we will try and discuss some quantitative aspects of the USD INR pair, and perhaps look at the contract specification of other currency pairs.
Can you please update it with in 2 months? Shreyadr — I completely agree with you. Infact Spot currency option trading in india try the margin with 10 lots and it comes to Rs.
Premium that will be earned is Rs. If this trade moves in our favour than there is return on investment of Is there a catch that we have not discussed in this chapter? Margin requirements for trading currency is lesser, simply because of the restricted movements in currency. A diligent trader can explore great trading opportunities here! You would receive for a deposit ofwhich if works in your favor turns out to be around 4. Please help, I am preparing for Nism Currency Exam… i am confused with these calculations on work book.
Check this chapter — http: Dear Karthik spot currency option trading in india, Since the trading is done till The rates will be out by In fact as explained in the earlier chapter, RBI polls for quotes everyday between Short usdinr each month and carry this trade for the premium at expiry.
U will receive some 30 paisa. I used to do this, but usdinr suddenly shoot from 66 to 67 during china news. But if i would continued to hold my position would spot currency option trading in india in profit in next month or so.
Now i think the solution for such movement is sell puts. This is good if you have deep pockets as you can accommodate for MTMs. I would prefer holding Spot currency option trading in india as opposed to options.
Hi Kathik What are these restrictions in the movement of currency prices that you are referring to? About the RBI reference rate- It is arrived at, by polling quotes from major forex dealing banks.
Does it mean that there is no singular spot rate? There are a set of designated banks that can participate in this process. RBI calls them individually and asks them for a two way quote, then RBI averages this and arrives at the rate for the day. This is the official rate that everyone quotes. Restrictions is mainly in terms of RBI intervening whenever there is a drastic move in the markets — they either buy or sell dollars to support the currency.
How much margin will be required? Will it be counted as one trade and brokerage charged accordingly? How and when is it squared off? Please if possible means you can help in future chapters sir or else its ok …. Sir thanks a lot for ur efforts to teach new comers in the markets. Himilind herei have checked intrinsic value as per your chapter Mo. Can we send buy and sell order in a single morder? We have discussed this here — http: Check this chapter, have discussed some stats — http: I have 2 questions: If you expect the prices to recover then you should hold.
Or if you a pure intraday trader and do not like taking on overnight risk, then its prudent to square it off. For reasons such as this, you need to pre define your trade with stoploss, target, and timeframe…without this there are bound to be a lot of confusions.
Sir, thanks for your answer. Would you say trading futures is better as compared to options in this case. At the moment yes, but from what I understand the options segment is likely to attract better liquidity going forward. That means both the parties trying spot currency option trading in india make the market move in sideways only.
If so when will be there intervention if its In this kind of scenario pls advice that ta is fully not realiable with ta. How can I get the usdinr spot rate charts for technical analysis. I think its not available in pi only future contract charts are available. The rates I can get from RBI site as mentioned but is there any possibility to get the spot data chart in pi for better understanding?? Spot is not traded on exchanges, hence difficult to get the data.
However you can download the data from RBI site and try plotting on the excel.