Fx exchange traded currency options in india
A foreign exchange derivative is a financial derivative whose payoff depends on the foreign exchange rate s of two or more currencies. These instruments are commonly used for currency speculation and arbitrage or for hedging foreign exchange risk. Foreign exchange transactions can be traced back to the fourteenth Century in the UK, but the coming into being and development of foreign exchange derivatives market was in the s with the historical background and economic environment.
When floating exchange rate system replacing a fixed exchange rate system, many countries had gradually relaxed the control of interest rate and the risk of financial market increased. In order to reduce and avoid risks and achieve the purpose of hedging, modern financial derivatives came into being.
Secondly, economic globalization promoted the globalization of financial activities and financial markets. After the collapse of the Bretton Woods system, a large number of fx exchange traded currency options in india flew across the world. Countries generally relaxed restrictions on domestic and foreign financial institutions and foreign investors. Changes in macroeconomic factors led to the market risk and the demand for foreign exchange derivatives market increasing further, what promoted the development of the derivatives market.
Under such circumstances, financial institutions continue to create new financial tools to meet the needs of traders for avoiding the risk. Therefore, fx exchange traded currency options in india large number of foreign exchange derivatives was widely used, making the foreign exchange market expanded from the traditional transactions market to the derivatives market, and develop rapidly.
The end of contract mostly adopt the settlement for differences. At the same time, the buyers need not to present full payment only when the physical delivery gets performed on the maturity date. Therefore, the characters of trading financial derivatives include the lever effect. When margin decreases, the risk of trading will increase, as the lever effect will increase.
All of traditional risk-management tools insurance, asset-liability management, portfolio etc. It mainly refers to raise the efficiency of business running and financial market. The latter reflected as it enriches and completes financial market system by countless kinds of products, reduces the occurrence of asymmetric information, realizes the desirable arrangement of risk, increases fx exchange traded currency options in india efficiency in pricing etc.
Margin needs to make corresponding adjustment on time according to the price of contract. Foreign exchange derivatives can allow investors to engage in risk avoidance to keep value, but also can earn profit through speculation. This kind of specific duality makes derivatives more uncontrollable.
Thus, foreign exchange derivative products can be risky while rewardable. Chen Qi, ; in addition speculative transactions in the financial market are considered negatively and of potential damage to the real economy. From Wikipedia, the free encyclopedia. Fx exchange traded currency options in india derivative Freight derivative Inflation derivative Property derivative Weather derivative. Retrieved from " https: Foreign exchange market Derivatives finance.
Already this year, two exchanges have launched new currency contracts in Europe. In July, Eurex began trading currency futures and options contracts for the first time following hot on the heels of the launch of CME Europe, a wholly new exchange for Europe which opened its doors in London on 28 April with 30 FX futures products.
This is a change that is going to unfold in the global FX market. When European customers look at how these capital charges are going to impact their businesses they are going to have to find the most cost effective and capital efficient way to continue to trade in the FX market. This is why we wanted to bring exchange-traded foreign exchange to the European marketplace. Sammann believes the regulatory landscape has still a long way to go in unfolding.
The impact on market structure of the new capital charges is already putting the bilateral credit model under threat. Sammann says that the main focus of the launch was FX. This was in order to make the same products available to European customers as global participants are already trading in the US, at CME Group.
When you look at the global FX marketplace, it is massive market that has got to go through a huge amount changes. When we announced this in Augustthere was no European platform providing on-exchange trading for FX in Europe. However, Sammann welcomes the Eurex launch in July as being good for the market because customer choice is paramount. We have invested in our client base, our product sets, building our options business, building our infrastructure with our clearing house and now a European exchange.
We absolutely believe that over time exchange-traded FX will continue to play a larger and larger role in the global FX market, so others following our lead are validating our business model and what our customers have told us. Other products will be announced in due course but Sammann can confirm that CME Europe is not going to be an FX-only exchange and it is looking at certain fixed income products to complement its swaps clearing capability in Europe.
The benefits of multi-asset exchanges are significant in terms of capital efficiencies for the customer. To ensure we can provide our customers with the most capital efficient model we are aligning the OTC products that we clear with the exchange-traded products that we trade on our exchange.
By having those in the same European clearing house, over time we can provide margin offsets as we do in the US with our OTC swaps clearing against Treasury futures, for example. We are working to be able to provide portfolio margining as quickly as we can in our European clearing house and exchange. We have found in our US franchise that the portfolio margining benefits are significant.
The cash-settled USD securities options on FX, launched inmarked the first time retail investors were provided the ability to hedge or trade the direction of major currencies utilising options trading strategies paralleled to equities. Specifically I would highlight our engagement with retail participants. Our seven FX options contracts are tailored for equity options participants who want to express a macro position via a currency — these are under the SEC and are not impacted by Dodd Frank.
They behave like an index, but track the underlying spot FX prices in increments of 10, units of currency. We are encouraged by the recent uptick in our ADV and the increasing level of interest shown in this product due to investments in education despite record levels of low volatility.
Further to this, the exchange is broadening its FX product set to meet the changing demands of the FX market in the light of the new regulatory clearing requirements.
For Holcombe, the FX industry is still in transition, evolving to cope with mandated changes affecting pre-trade, post-trade, and execution itself. But, he says, exchange-traded and CCP-cleared FX bring obvious benefits to market participants looking for regulatory-certainty on product and execution venue, and where an agency model secures revenue without taking the risk position or assuming the credit and capital cost burden of maintaining a bilateral OTC position with that counterpart.
Holcombe believes that because the move to agency is a very difficult transition currently, especially as incumbent FX exchange venues are constrained to old-school listed FX products that do not offer the flexibility that OTC products intrinsically offer, banks are already looking at how best to offer exchange-traded FX via their single dealer platforms and algorithmic offerings to give the customer a choice of execution venue.
The drivers to clear and the increasing challenges of retaining a pure principal to principal OTC FX franchise are already playing out. At the Dubai Gold and Commodities Exchange meanwhile, while there was a slight decline in the currencies volume year-to-date its Indian Rupee futures showed a growth of 22 per cent month-on-month in July, while Mini Indian Rupee futures rose 3 per cent.
The key factors that are driving the currency growth in the region include the growing attractiveness of currencies as an alternative asset class, the fact that UAE is emerging as a centre for forex trading, and the stronger regulatory environment, which offers participants the opportunity to trade directly in a transparent, secure and regulated environment with full-fledged clearing facilities. The Mini Indian Rupee futures contract has been designed to meet increasing demand from market participants for a smaller product and it allows them to use it as a hedging and investment tool without making high capital commitments.
The contract particularly benefits individuals and businesses that regularly remit funds to India, and SME traders who import from and export to India. Participants can construct precisely tailored hedges on the Indian Rupee. The Mini Indian Rupee Futures can be cross-margined with the regular DGCX Indian Rupee product offering, which means that any excess margin in an account for one of the Indian Rupee products can be used to cover an account in the other Indian Rupee product that has fallen below the margin requirement.
Other cross-margining commodities also are being developed. The DGCX Indian Rupee options contract was temporarily suspended in to facilitate migration to a new trading infrastructure. With the new technology platform in place, the exchange is able to support high volumes in innovative products such as the Indian Rupee options contract.
In keeping with this strategy, Wright says the exchange places great emphasis on what the market needs and structures its products based on constant feedback from its broker members and market participants. In response to its member and market needs, DGCX is focused on developing a strong offshore platform for the trading of a range of emerging markets products. So far this year, the DGCX Indian Rupee futures contract increased its share of the total value of Indian Rupee futures traded globally to 40 per cent of on-exchange business.
Wright believes that FX trading is emerging as an attractive investment option in the Middle East. Market participants now have a better understanding of trading strategies, the FX market and more sophisticated technology. The objective is to offer a platform for offshore trading of emerging market currency contracts as DGCX offers a safe and regulated environment for international investors to hedge their exposures in emerging market currencies offshore.
As the leading Asian gateway, the Singapore Exchange SGX is the most liquid and biggest offshore market for key Asian equity derivatives, and the preferred price discovery centre for key commodities such as natural rubber and seaborne iron ore. SGX has a dominant base for managing equity risk premium in its clearing house and it offers margin efficiencies between regional forex and Asian regional equities. Cross-margining is made possible wherever stable and significant correlations are available, including those between futures and OTC cleared products on related underlying.
SGX is expanding its current suite of Asian FX futures with new currency futures contracts on the Chinese renminbi, Thai baht and Japanese yen in the coming few months. Syn believes that futures have been the most preferred format to provide portfolio margining efficiencies. SGX FX futures contracts are designed to be net-settled, which in our view, remove risks associated with gross settlement and closely mirrors existing settlement practices in the OTC NDF market.
Syn believes that regulations, such as Basel III and Dodd Frank, have led investors to re-think their counterparty risks associated with unregulated OTC trades and operational and capital efficiencies in the way they conduct their FX business. As exchange-traded products promote greater price transparency through a central limit order book accessible by all market participants this has greatly benefited end users such as asset managers, hedge funds and corporates which are now seeing an increasing to fulfil best-execution requirements.
SGX is also seeing corporates, particularly small and mid-size firms, choosing to hedge their foreign currency risks using futures due to the finer trade sizes and tighter price spreads offered on NDF futures. The upcoming clearing mandates and higher capital charges to be imposed on uncleared exposures could drive more participation on exchanges for FX transactions in the near future. With our recent service expansion to cater for client clearing, we at SGX are confident of positive developments in the clearing front as clients in the marketplace gain greater awareness of the benefits of clearing.
Forthcoming mandates expected in NDFs can further propel this too. We will continue to engage our global market participants to explore solutions and services that will meet their evolving needs. Clients can easily connect to SGX through widely-used industry platforms so that it is a seamless process from execution of trade to an electronic trade affirmation and onward to SGX for clearing.
Looking ahead, as regulatory mandates in US and EU begin to take effect for non-deliverable currencies of which a number are Asian currenciesmarket expectations are that these clearing requirements are likely to increase the overall costs of trading non-deliverable currencies on OTC basis.
Nonetheless, some customers will still have certain bespoke requirements for which they will continue using the OTC market. This material may not be published, broadcast, rewritten or redistributed in any form without prior authorisation by ASP Media Ltd. Login Free Trial Subscribe.