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Friday Box Office Day - Currency Weekly Contracts

Friday is the favourite day for every one of us as it marks last trading day of the week, commencement of weekend, release of new movies, partying etc. Likewise, the Indian currency derivatives also enjoys the advantage of Friday in terms of lower cost, capturing short term market movement etc., making it one of the most lucrative financial instruments for the retail traders.  

The currency derivatives—Futures and Options—are growing enormously day by day because of increased participation from traders, investors, resident Indians, corporates, importers, and exporters. Since introduction of Futures trading in 2008 and Options trading in 2010, both these instruments leap frogged in terms of volume and participation because of smaller size of the contracts. Adding feathers to the success of currency derivatives, the weekly contracts were introduced in both Futures and Options making it most lucrative instrument for various market participants. The global currency market is the second largest financial instrument after interest rate because of its wide usage in international trade between countries. There are 154 different currencies from 221 countries in the world based on the United Nations Treasury. 

The introduction of Currency Derivatives at Indian exchanges aided participants in hedging foreign exchange risk, increased transparency, and gave a guarantee of settlement. Contracts transacted on the Exchange are standardised, allowing both large and small players equal access. The weekly contracts will be in addition to the existing monthly contracts, which expire two working days before the end of the month. Market participants will have access to a comprehensive trading schedule as well as a wider range of expiry options.

Besides from lowering time-related costs, weekly derivatives on currency pairings will also assist market participants in hedging their currency exposure against short-term market swings resulting from government policies, economic data releases, government reports. Participants would  be able to manage their exposures more efficiently in a market with thin bid-ask spread than in over the counter (OTC) markets., With the launch of weekly derivatives in  currency pairs, Options in currency derivatives may appear lucrative as time decay of premium wouldn’t be that steep., This facilitates  market participants  to get  an effective short-term portfolio protection at a lower cost.

The exchange launched trading in currency derivatives in August 2008 with the introduction of 12 monthly futures on USD-INR and subsequently three monthly and three quarterly options on USD-INR in October 2010. Weekly options contracts were introduction in December 2018 while weekly futures contracts were introduced in October 2021. 

Contract Specifications

Symbol

USDINR

EURINR

GBPINR

JPYINR

Unit of Trading

1000 USD

1000 Euro

1000 GBP

100000 Japanese Yen

Quotation

  In INR for 1 USD

In INR for 1 Euro

In INR for 1 GBP

In INR for 100 JPY

Tick size

0.25 Paisa or INR 0.0025 (4 decimals)

Trading hours

Monday to Friday, 9:00 AM to 5:00 PM

Contract trading cycle

Futures

12 monthly trading Contracts and 12 weekly Contracts – Expiring on Friday

Options

3 serial monthly contracts followed by 3 quarterly contracts of the cycle March/June/ September/December. For Weekly Options- 11 serial weekly contracts expiring on Friday, excluding expiry week wherein monthly contracts expires on a Friday.

Currency Futures and Options are having higher edge over the OTC market because of transparency, long trading hours than OTC market, lower bid-ask spreads, easy accessibility of the market through desktop, laptop and smartphone, larger participation from retailers, corporates, resident Indians as well as FPIs. Weekly contracts are most liquid contracts for retail traders who would like to capture the short-term market movement. 

Also Read: How does Spread Contract help in Currency Trading?

Summary

Currency derivatives weekly contracts in both Futures and Options are boon for the retail traders as they would capture the quick market movement at a lower holding cost.. This may have an effect of higher , liquidity in the weekly contracts    than longer period contracts. Due to this a higher number of traders would be interested to trade in them.

Disclaimer – ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Mr. Anoop Goyal, Contact number: 022-40701000, E-mail address: complianceofficer@icicisecurities.com. Investment in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.