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Currency Derivative


INTRODUCTION TO CURRENCY FUTURES TO

CURRENCY INTRODUCTION TO Currency futures are standardized foreign exchange contracts traded on a recognized stock exchange to buy or sell one currency against another on a specified future date, at a price specified on the purchase or sale date.

CURRENCY FUTURES FUTURES

Currency Options are standardized contracts that gives the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time.


HISTORY.. ď ą The Chicago Mercantile Exchange (CME) created FX futures, the first ever financial futures contracts, in 1972. ď ą In India, NSE started Currency Futures on August 29,2008.Later on 2 more exchanges MCX and USE Started Currency Futures on October 6, 2008 and September 20, 2010 respectively.


VOLUME GROWTH IN CURRENCY SEGMENT

Financial experts are expecting a multifold growth in the currency segment in the next few years. This can be clearly understood by the current average volume of approx. Rs.32000 crores per day with in a short span of time.


CURRENCY FUTURES TERMINOLOGY  Only USD, EUR, GBP, JPY presently traded.

futures n options (USD only) contracts is

 The trading on currency futures n options would be available from 9 a.m. to 5 p.m. From Monday to Friday.  The contract size for all is of 1000 units (except JPY with lot size of 100000).  The Tick price, minimum price fluctuation, is 0.25 paisa or 0.0025 Rupees  As per RBI Guidelines, physical delivery of currency is not allowed, so the currency futures contract are compulsory settled in cash in Indian Rupees.


CURRENCY FUTURES TERMINOLOGY  The prices in currency derivatives segment are displayed, traded and reported up to the fourth decimal place instead of up to two. For example, Rs 52.50 shall be displayed as Rs 52.5000.  In the Currency futures market, at the end of each trading day, the margin account is adjusted to reflect the investor’s gain or loss depending upon the futures closing price.  The last trading day of the contract will be 2 days prior to the last business/trading day of the month.  All resident Indians are allowed to participate in currency futures, only NRIs and FIIs are not eligible to trade.


COSTINGS ACROSS DIFFERENT SEGMENTS Type of Charges (Cost per crore)

Cash Segment (non-delivery)

Futures Segment

Commodity Segment

Currency Segment

Exchange Transaction Fee

0.0335% (Rs. 335)

0.002% (Rs. 200)

0.00250% (Rs. 250)

No charges (Rs.0)

SEBI fees

0.0001% (Rs. 10 )

0.0001% (Rs. 10)

No charges

0.0001% (Rs 10)

Service Tax

10.3% (Rs. 35.54)

10.3% (Rs.20.60)

10.3% (Rs.25.75)

10.3% (Rs.0)

STT/CTT

0.025% (Rs.2500)

0.017% (Rs.1700)

NA (Rs.0)

NA (Rs.0)

Margin

15%-25%

15%-25%

5%-15%

2.5%-4%

Stamp Duty (Maharashtra)

0.002% (Rs.200)

0.002% (Rs.200)

0.001% (Rs.100)

0.002% (Rs.200)

Total Cost Per Crore Turnover ( approx. )

Rs.3080.54

Rs. 2,130.60

Rs.375.75

Rs.210

Margins ( approx. )

15,00,000

Rs.15,00,000

Rs.5,00,000

Rs.2,50,000


MARGIN REQUIREMENT PER LOT

Currency

Total Margin

Margin per lot

Required

(approx.)

LTP as on 24th Feb 2011

Lot Size

Value per lot

(approx.)

 

USD/INR

45.755

2.32

1000

47555

1085

EUR/INR

62.95

2.62

1000

62950

1540

GBP/INR

73.8275

2.48

1000

738275

1845

JPY/INR

55.785

2.98

1000

55785

1900


PARTICIPANTS IN CURRENCY FUTURES

• TRADERS • ARBITRAGERS • HEDGERS


Understanding Participants Trading- Through trading getting good earning from new segment with least risk & minimum investment, thereby making it a profit center on its own, as margin requirement is also very as compare to other exchange traded product, that vary in between 2.5% to 4%. Arbitrage- There is potentially exist between Currency Futures, OTC Forwards and Non Deliverable Forward Contracts traded offshore. Arbitrage can be executed by an entity having exposure to any two of the above mentioned markets. Hedging - This gives the opportunity to hedge the foreign currency exposure (USD, GBP, Euro & Yen) through Currency Future & Option trading in the Indian Stock Market (National Stock Exchange & MCX-SX).


Uses of Currency Futures as a Hedging Tools

Hedging: Presume an Exporter A is expecting a Payment for his exports for USD 10000 on 25th April 2011 & wants to lock in the foreign exchange rate today so that the value of inflow in Indian rupee terms is safeguarded. The He can do so by Baying 10 contracts of USDINR futures since one contract is for USD 1000.


Prospective Clients  SME’s ( Small to Medium size Exporter/Importer) • Any person who is having any kind of exposure in the given currencies. • Small traders who are looking for good exposure in terms of intraday and carry forward limits.  Clients with low risk- low return profile  Clients with Low Initial Investment  FOREX Money Changers / Retail Brokers in Currency • Borrowers of foreign currency ECB, FCCB. • International Service Provider • International remittances like rental income, interest income. • Arbitrageurs


USPs of Currency Derivatives  Foreign Exchange Market is the second biggest financial market all over the world.  In India, RBI & SEBI are the monetary committees for currency derivatives, so we can ensure the client a better safe guard of his money.  With the leverage of more than 30 times, the volume and ultimately the revenue of the company can increase many folds with in short span of time.  As compare to equity, currency segment has just grabbed less than 1% of the prospective markets.  Currencies trading is the most cost effective segment among the other financial products.    


USPs of Currency Derivatives… • No demat account, No DIS slips, No pay-in pay-out short of shares, No Right issues/Bonus shares, Pool account, AMC , no ND period, Currency is easy to learn and operate. • Client can start trading with as little as Rs. 10000-20000. • We can approach those clients who are dormant in equity or commodity segments. • We can also approach those clients who have been fed up with equity and commodities markets.


USPs of Currency Derivatives…  No Account opening Charges (FOR LIMITED PERIOD)  No Annual Maintenance Charges  Simple registration process, Just sign the KYC kit and start trading.  Free Online terminal to all the clients


HOW TO TRADE IN CURRENCY USD/INR- Upward Trend

Amount (Rs.)

USD/INR- Downward Trend

Amount (Rs.)

Buy Price -

52.1

Sell Price -

52.7

Square-off price -

52.3

Square-off price -

52.5

Change in Price

0.2

Change in Price

0.2

One Lot Qty (USD)

1000

One Lot Qty (USD)

1000

Gross Profit

200

Gross Profit

200

Brokerage / Lot (Rs 20 Each Side)

40

Brokerage / Lot (Rs 20 Each Side)

40

6

Stamp Duty /SEBI Fee (Approx) (Rs.210 Per crore) & Service Tax (10.3% of Brokerage)

6

Stamp Duty /SEBI Fee (Approx) (Rs.210 Per crore) & Service Tax (10.3% of Brokerage) Net profit

154

Net profit

154



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