IIFL Training Team

Welcome to the World of Currencies

IIFL Training Team

Lets understand, how foreign exchange market really works…

IIFL Training Team

Spot

Three ways of trading in Forex

Spot Forward Future• Foreign exchange spot trading is buying one currency with a different

currency for immediate delivery. The standard settlement convention for Foreign Exchange Spot trades is T+2 days, i.e., two business days from the date of trade execution.

• An exception is the USD/CAD (US – Canadian Dollars) currency pair which settles T+1. Rates for days other than spot are always calculated with reference to spot rate

IIFL Training Team

Three ways of trading in Forex

Spot Forward Future• A foreign exchange forward is a contract between two counter parties to

exchange one currency for another on any date after spot

• Settlement Day –

TD TD+1 TD+2 TD+3 or any later day

Value Cash Value Tom Spot Forward Outright

For example, if April 5 is the TD. Then April 6 is tom and April 7 is spot. Any day after April 8 is forward.

Also note that Saturday and Sunday or market holidays will not be considered

TD TD+1 TD+2

TD+3 or any later day

IIFL Training Team

Three ways of trading in Forex

Spot Forward Future• To participate in the currency markets one needs to go through

an Authorized Dealer. Most of the trading is done Over The Counter• To encourage retail participation and to do away with some of

the disadvantages of the forward markets the exchanges have introduces Currency Futures

IIFL Training Team

What are currency futures?

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that they are standardized exchange traded contracts

IIFL Training Team

The difference between currency forwards and exchange traded futures

Forward Market Exchange Traded Futures

Accessibility Restricted entry Entry not restrictedPrice Transparency Limited access Online High visibilityLiquidity Depth not known Depth visibleAgreements Customized StandardCredit Exposure Yes Mitigated through NSCCLSettlement Physical Delivery Net Settled in INRUnderlying exposure Required Not required

IIFL Training Team

NSE Currency Futures

Contract SpecificationsUSD-INR EUR-INR GBP-INR JPY-INR

Underlying USD-Indian Rupee Euro-Indian Rupee

Pound Sterling-Indian Rupee

Japanese Yen-Indian Rupee

Trading hours

9 a.m. to 5 p.m.

Size of the contract

USD 1,000 Euro 1,000 GBP 1,000 Japanese Yen 1,00,000

Quotation

The contract would be quoted in rupee terms. However, the outstanding positions would be in USD terms.

The contract would be quoted in rupee terms. However, the outstanding positions would be in Euro terms.

The contract would be quoted in rupee terms. However, the outstanding positions would be in Pound sterling terms.

The contract would be quoted in rupee terms. However, the outstanding positions would be in Japanese Yen terms.

IIFL Training Team

Settlement mechanism

Cash settled in Indian Rupee

Settlement price

The settlement price would be the Reserve Bank Reference Rate for USDINR on the date of expiry.

The settlement price would be the Reserve Bank Reference Rate for EURINR on the date of expiry.

GBPINR Exchange rate published by the Reserve Bank in press release captioned RBI reference rate for US dollar and Euro.

GBPINR Exchange rate published by the Reserve Bank in press release captioned RBI reference rate for US dollar and Euro.

Last trading day

Two working days prior to the last business day of the expiry month at 12 noon

Final settlement day

Last working day of a month (Last working day will be same as that for Interbank settlements in Mumbai)

IIFL Training Team

Initial margin

The initial margin so computed would be subject to a minimum of 1.75% on the first day of trading and 1% thereafter.

The initial margin so computed would be subject to a minimum of 2.80% on the first day of trading and 2% thereafter.

The initial margin so computed would be subject to a minimum of 3.20% on the first day of trading and 2% thereafter.

The initial margin so computed would be subject to a minimum of 4.50% on the first day of trading and 2.30% thereafter.

Extreme Loss margin

Extreme loss margin of 1% on the mark to market value of the gross open positions

Extreme loss margin of 0.3% on the mark to market value of the gross open positions

Extreme loss margin of 0.5% on the mark to market value of the gross open positions

Extreme loss margin of 0.7% on the mark to market value of the gross open positions

IIFL Training Team

Calendar spread margin

The calendar spread margin shall be at a value of Rs. 400 for a spread of 1 month.Rs 500 for a spread of 2 months.Rs 800 for a spread of 3 months Rs 1000 for a spread or 4 months or more.

The calendar spread margin shall be at a value of Rs. 700 for a spread of 1 month.Rs 1000 for a spread of 2 monthsRs 1500 for a spread of 3 months or more.

The calendar spread margin shall be at a value of Rs. 1500 for a spread of 1 month.Rs 1800 for a spread of 2 months Rs 2000 for a spread of 3 months or more.

The calendar spread margin shall be at a value of Rs. 600 for a spread of 1 month.Rs 1000 for a spread of 2 months Rs 1500 for a spread of 3 months or more.

Tenor of the contract The maximum maturity of the contract would be 12 months.

Available contracts All months maturities from 1 to 12 months would be made available

IIFL Training Team

Trading in Currencies

NOW NEAT Plus

IIFL Training Team

Conditions

Other Conditi

ons

Time Conditi

ons

Price Conditi

ons

IIFL Training Team

Price conditions

Limit Price

• Limit Price order is an order where you specify a particular price at which the order should get executed

• For eg. let’s say the current market price of a USDINR is 45.0075 and you place an order to buy at Rs. 45.0025. This order is called a limit price

Market price

• Market price orders are orders for which the price is specified as 'MKT’ when the order is entered

• For such orders, the system determines the best available price

Stop-Loss• Stop-Loss facility allows the user to release an order into the system only after the market price

of the security reaches or crosses a certain pre-decided threshold price which is called the trigger price• Trigger Price is the Price at which an order gets triggered from the stop loss book• Limit Price is the Price of the orders after triggering from stop loss book

IIFL Training Team

Time conditions

A Day order

• A DAY order, as the name suggests is an order that is valid for the day on which it is entered. If the order is not executed during the day, the system cancels the order automatically at the end of the day. By default, the system assumes that all orders entered are Day orders

• For example, lets say that you have placed an order to buy 1 lot of USDINR at 45.0000. During the trading session your order does not get executed as the price of the currency was above 45.0075 the whole day. In such a scenario your order gets cancelled once market closes and if you want the same order to be placed the next day then you need to place a fresh order

An Immediate or Cancel (IOC) order

• An Immediate or Cancel (IOC) order allows the user to buy or sell a security as soon as the order is released into the system. If the order does not execute immediately then the order is cancelled from the system. Partial match is possible for the order and the unmatched portion of the order is cancelled immediately

IIFL Training Team

Other conditions

Propriety (PRO)

• By selecting PRO options broker can place order on his own behalf

Client (CLI)

• By selecting CLI options broker can place order on behalf of the client

IIFL Training Team

Thank You