Currency Derivatives Margins Details for Indian Investors
Currency derivatives trading in India is first started with single Currency pair of USD-INR. National Stock Exchange of India started trading in currency futures on 29 Aug 2008. Now in India currency derivatives trading is offered in four currencies namely USD, EUR, GBP and JPY. Options Trading in Currency started on 29 Oct 2010.
Currency Derivatives margins are applicable for currency futures and options positions ( In options margins are applicable only on short position). Along with USD-INR, other currency pairs available for trading are GBP-INR, EUR-INR and JPY-INR. Unlike equity futures, lot size of all the currency pairs are 1000 (1 lot = 1000). For JPY-INR lot size is 100000. In India, Currency trading in futures is available for 12 contracts, 1 for each month. Operating price range of contracts with tenure up to 6 months is +/- 3% and + / – 5% for contracts with tenure above 6 months.
Currency Derivatives Margins (in Percent) are lesser for USD-INR pair compared to other currency pairs. Initial Margin is applicable on all currency futures positions traded.In addition to initial margin, extreme loss margin(ELM) is applicable on Mark to Market (MTM) Value on gross market positions open. Every trader pays two types of margins while trading in currency segment in India. One is Initial margin and the other Extreme Loss margin.
Initial currency derivatives margins requirements are based on 99% value at risk over a one day time horizon. In case, if it is not possible to collect M2M (Mark to Market) settlement value before next trading day, initial margin is computed for two days period. VaR (Value at Risk) computation methodology followed by all currency exchanges in India is as per SEBI recommendations.
Extreme Loss Margin (ELM) on Currency Future Contracts
USDINR Futures – 1% USDINR Options – 1.5% ( For Short Open Positions Only) EURINR – 0.3% GBPINR – 0.5% and JPYINR – 0.7%
Currency Derivatives Margins (Calendar Spread)
Calender spread margins are fixed in nature and are as follows ( No need for currency derivatives margin file to know calender spread margins as they are fixed in rupee values). Script 1Month 2Months 3Months 4Months&above
USD-INR 400/- 500/- 800/- 1000 EUR-INR 700/- 1000/ 1500/- (and for above 3 months) GBP-INR 1500/- 1800/- 2000/- (and for above 3 months) JPY-INR 600/- 1000/- 1500/- (and for above 3 months)
Settlement of currency futures takes place on T+1 for daily settlement and on T+2 for final settlement (T- represents Trading day). Daily settlement price of MCX Currency futures is last 30 minutes weighted average price of contract or the price as determined and communicated by relevant authority. Usually, RBI (Reserve Bank of India) is the relevant authority. Final settlement price is the reference rate set by RBI for USD-INR and EUR-INR. Final settlement price in respect of GBP-INR and JPY-INR is the Exchange rate published by RBI in Press Release captioned as “RBI Reference Rate for USD and Euro”. Reference rates are published on RBI Website.