How Does Currency Derivatives Trading Work?

• Presently, all Futures contracts on Exchanges are settled in cash. There are no physical contracts.
• All trades on Currency Exchanges take place on their respective nationwide electronic trading platforms. These can be accessed from dedicated member terminals at various locations across India.
• All participants on the Currency Exchange trading platform can participate only through trading members of the Exchange.
  • Participants have to open a trading account and deposit stipulated cash and/or collaterals with the trading member.
• Exchanges stand in as the counter-party for each transaction. Therefore, participants do not need to worry about defaults.
  • In the event of a default, Exchanges will step in and fulfil the obligations of the defaulting party, and then proceed to recover dues and penalties from them.
• Those who enter the market either by buying (long) or selling (short) a Futures contract can close their contract obligations by squaring-off their positions at any time during the life of that contract by taking an opposite position in the same contract.
  • Participants have to open a trading account and deposit stipulated cash and/or collaterals with the trading member.
  • A long (buy) position holder has to short (sell) the contract to square-off their position and vice versa.
  • Participants will be relieved of their contract obligations to the extent they square-off their positions.
• All contracts that remain open at expiry are settled in INR in cash at the reference rate specified by the Reserve Bank of India.