Module 8 Currency & Commodity Futures

Chapter 18

Cross Currency Pairs

82

18.1 – All hail the king of Forex

Outside India, the biggest market people trade in is the Forex futures market. Right from the retail to institutional segment everybody trades the forex futures markets. If you look at this more closely, you will realize that the biggest currency futures which are traded are –

  1. Euro against the US Dollar – EUR USD
  2. GBP against the US Dollar – GBP USD also called ‘The Cable’
  3. US Dollar against the Japanese Yen – USD JPY

Till recently, if you wanted to trade any of these international currency pairs, you’d have to open an account with some obscure broker outside India, probably domiciled in Cyprus or Isle of Man, wire funds to the broker’s bank account, and trade based on the rate he relayed. There was no regulatory framework here, which made the whole affair a bit shady.

Now, none of that is required. The National Stock Exchange, under the full regulatory framework, has finally allowed cross currency futures and options to be traded on the exchanges.

All the above-mentioned currency futures are available to trade on NSE. In this chapter, I’ll try and give you information on how these contracts are structured so that you can trade them effortlessly.

By the way, here is a quick trivia for you – according to BIS survey, about 88% of the International Forex trades happen with USD on one side of which, 50% of the trades are on EUR USD, GBP USD, and USD JPY. So this should give you a sense of how massive these contracts are.

Anyway, let us brush through some basis before we proceed.

When you see a currency pair – say EUR/USD, the first currency is called the Base Currency and the 2nd is called the Quote Currency, and the currency pair is always quoted in the quote currency.

So for example, if you see the price of EUR/USD = 1.23421, then this means 1 EUR is equal to 1.23421 US Dollars.

Have a look at the table below –

Currency Pair Base Currency Quote Currency
EUR USD EUR USD
GBP USD GBP USD
USD JPY USD JPY

Also, here is a typical order book, assume this is for EUR USD,

Bid Price (price at which you buy) Ask Price (price at which you sell)
1.2431 1.2429
1.2429 1.2427
1.2425 1.2222
1.2420 1.2418
1.2418 1.2416

So if you wish to buy the EUR USD, that means you are willing to pay USD 1.2431 for 1 EUR. Likewise, if you want to sell, you are willing to sell 1 EUR to 1.2429 USD.

18.2 – The Futures Contracts

NSE has introduced both futures and options on these international currencies. I think it will be a while for the options will pick up steam, however, I think the near month futures will attract traders on an immediate basis.

The best part is the lot size across all the three currency pairs is fixed to 1000 units of Base currency. Here is how the lot size is fixed –

Currency Pair Base Currency Quote Currency Lot Size
EUR USD EUR USD 1000 EUR
GBP USD GBP USD 1000 GBP
USD JPY USD JPY 1000 USD

The lot size convention is important to remember, and you will understand why a little later.
The tick/pip that will trade on the exchange is 0.0001 for EURUSD/GBPUSD and 0.01 for USDJPY.

There will be 12 monthly contracts available for trading. Near month contracts will expire 2 days prior to the last trading day of the month.

18.3 A Future Trade

The Profit and Loss for cross currency contracts will be shown in the quote currency and not in INR like it is for normal equity, commodities and currencies traded in India. Let’s understand this with an example of all the 3 contracts.

The Profit and Loss for the position are converted to the INR using the Reference rate (released by RBI at 12.30 PM) at the end of the trading day. P&L for EURUSD and GBPUSD will be converted using USDINR and USDJPY with JPYINR rate.

For carryforward positions, the daily ‘marked to market’ settlement will be at the daily settlement price (weighted average price of the last half hour of trading)

18.4 The Options Contract

The options contract follow suit to USDINR options, that are already traded on the exchange. Here are the contract specifications.

Option expiry style – European

Premium – Quoted in quote currency (USD for GBPUSD EURUSD and JPY for USD JPY)

Contract cycle – There will be 3 monthly and 3 quarterly contracts. There will be three continuous monthly contracts followed by a quarterly contract every 3 months.

Strikes available – 12 In the Money, 12 Out of the Money, and 1 Near the money option. So this is roughly 25 strikes available for you to pick and choose from.

Underlying Euro US Dollar Pound – US Dollar US Dollar – Japanese Yen
Strike Price Interval 0.005 0.005 0.50

18.5 Expiry

All near month contracts will expire 2 days prior to the last trading day of the month at 12.30 PM and will be settled at the final settlement price.

Let’s look at how the final settlement price is calculated. The cross currency rate for the pair will be calculated using the reference rate of the individual currency quoted in INR.

Currency Pair USDINR EURINR GBPINR JPYINR
RBI Reference Rate 65.2261 79.5041 89.7055 0.6107

Futures contracts will be marked to market at the final settlement price and cash settled in T+2 days.
The intrinsic value of all in-the-money contracts will be calculated at the final settlement price. Let us understand this with an example.

Final Settlement Price for GBPUSD 1.3753
Put Strike Price 1.3760
Exercise amount per contract(USD) 0.7
RBI Reference rate for USD at 12.30 PM 65.2261
Exercise Amount for the contract(INR) ₹45.65827

18.6 Margins

All contracts traded will have an initial margin of 2% of the contract value and an extreme loss margin of 1%. Margin blocked will be in Indian Rupee but the currencies will be traded in the quote currency (USD or JPY), the margin blocked will be converted to the quote currency. All trades placed before 02:00 PM will block margins as per the previous trading day’s reference rate and trades placed after 02:00 PM will use the trading day’s reference rate.

18.7 Calendar Spreads

A futures position in one expiry month which is hedged by an offsetting position in a different expiry month is a calendar spread and the same is explained in detail in this chapter. The margins blocked for the spread are fixed by the exchange and are

Spread duration Margins
1 month ₹ 1500
2 month ₹ 1800
3 month ₹ 2100
4 month ₹ 2400

Key takeaways from this chapter

  1. Cross currency pairs are allowed to trade in NSE for the first time
  2. Lot size of $1000 for EUR/USD, £1000 GBP/USD and $1,000 for USD/JPY
  3. The pairs will be traded in quote currency but will be settled in Indian Rupees
  4. Daily and Final M2M settlement will be based on the RBI reference rates.
  5. Near month contracts will expire 2 days prior to the last trading day of the month at 12.30 PM

82 comments

  1. Saify says:

    Thanks for the nice article.

    Where to get previous EUR/USD chart data on Kite. for TA ?

    • On Kite, chart data for cross- currencies is only available from 27 Feb 2018(launch of cross-currency trading).
      For TA(if you need chart data older than 27 Feb), I would recommend you use international forex charts that are freely available.

      • Saify says:

        Thanks Faisal.

        One more thing, currently I am checking realtime EUR/USD data on tradingview site. But when I compare the EUR/USD rate on tradingview to Kite, I can see some differences. There are 6 digits in trading view as compare to kite which have 5 digits price.

        Moreover, there is approx. 6 pips difference between tradingview & Kite price, is it because on tradingview the chart is spot & on Kite the price is future ?

        Please help here.

        • Karthik Rangappa says:

          These are few arbitrage opportunities and I’m guessing they will go away when liquidity picks up in the Indian Markets. Also, a large part of this can be attributed to the involvement of RBI’s reference rate.

  2. Akshay Hire says:

    Has zerodha allowed trading in cross currency, because my orders are being rejected.

  3. Mohamed Thaseen says:

    what books do you recommend for a beginning traders..
    do you think an average trader can achieve financial freedom over a long term…
    please advise only if you have time…or else no hard feelings….

  4. hiren says:

    Hi karthik,
    Taxation part looks quite outdated now, needs update now.

  5. santosh patidar says:

    If Base currency is improving then price of pair will go down ?
    USDINR = x if USD is becoming stronger then ? If INR is improving then ?
    Similarly for cross currency pair how movement takes place ?

  6. Padmanaban says:

    Your company only profiting but not customer. Every thing is imagine creature. Price for Pi software, Price for account opening, price for every thing but not profited. Software also worst. I paid brokerage, you should provide everything but . I am not satisfied.

  7. Jay says:

    Sir, can i trade online on spot ,in cross currencies. I don’t want to do a future trading in currency market.

  8. Miocic says:

    When zerodha going to allow trading in these very liquid pairs?? Could you explain why it is not being available for traders?

  9. Ashwin Singhal says:

    All my orders related to EURUSD are getting rejected. They are showing error message of ‘RMS:Blocked for EURUSD FUTCUR EQUITY cde_fo Remarks: Blocked for Trading block type: ALL’. What does it mean ?

    Thank you,

  10. prashant says:

    is only zerodha not allowing customers to trade cross currecny ?? any other broker has strated it or not??

  11. prashant says:

    can u tell us when approximately cross currency trading will be possible?

  12. Ashwin Singhal says:

    Come on Zerodha, please start trading in cross currency pairs as soon as possible. The volume in EURUSD is good for trading.

  13. Vijay says:

    Any update of cross currency trading availability?

  14. manoj kt says:

    why less volumes are traded in cross currency compare to INR pairs

  15. uday says:

    why zerodha is not starting eurusd trading….its been more than 3 months…only assurances very soon very soon

  16. anand says:

    i want to trad in future currency .whatb is the minimum amount to open account?….

  17. Harsh says:

    @ Zerodha

    My earlier perception was that you guys were really committed towards providing best customer services, something which hardly any Indian company provides. I don’t know how other brokers are doing but that’s not what I see when I deal with you.

    After trading with Zerodha for almost a year now, the perception has completely reversed. Zerodha is no different from other companies and don’t have a strict adherence to timelines. Copy-paste replies have become so common. Email replies are completely void of any depth, clarification, or smartness. They also seem to be content with their own relative comparison to other brokers in which they are doing the best to provide good service to their clients apparently.

    These instances changed my view on their customer service:
    1) Crux – roll-out assurances being given for almost a year now and yet every time you speak to them, they will say that it’s gonna be rolled out soon, probably by end of this week. Never a definitive timeline or any official announcement comes out.
    2) Cross-Currency Trading – Evident above that they have maintained the same reply of “very soon” for last 3 months

    Common zerodha, you can do better!

    • Karthik Rangappa says:

      Harsh, I understand your concerns. Trust me we are working towards delivery of everything promised. It’s just that the scale we are in, things get highly complex and things take time. I’m hoping you will continue your support and many thanks for your patience.

      • Varun says:

        Hi Karthik,

        Exchange launched on Feb 27, Zerodha has enough time to launch cross currency pairs.
        you guys are outstanding in term of technology implementation to trading platform
        not understand its taking more than 4 month to add cross currency scripts

        • Karthik Rangappa says:

          There are few vendor dependencies here, Varun. Hopefully soon is all I can say. Thanks for understanding.

  18. SG says:

    Hello,
    Order Window : –
    Default qty which pops up in the order window is 1, is it the lot size of 1000? or do I need to input 1000 in the qty field ?

    Margin:-
    So total of 3% (2+1) of Margin of the contract value will be blocked in USD value and converted to INR as per RBI 12.pm daily rate?
    For eg – If I buy 1 contract – EUR/ USD -> 1.1664 * 1000 = 1166 *3% = 35 USD (rounded off 34.98)
    35 USD * 68 ( for eg RBI rate @ 12 pm) = 2,380 INR
    So more or less this is how the base of margin calculation would be?

    If you could have given an example with screenshot in your tutorial would have helped.

  19. Shrey says:

    Sir,is it worth trading in usd/inr pair??

  20. Varun says:

    There is cross currency pairs traded in zerodha even though it has been launched officially in Feb. Support tem always reply by saying they are working on it

  21. NILESH PATEL says:

    u should start as early as cross currency future. all broker provide this service even small ticket broker also prois vide.
    zerodha is now in top 10 but still in zerodha we unable to trade in cross currency.

  22. P.s.perumal says:

    P&l=((order close price-order open price)/ticksize)*lotsize*no.of .Lots
    Is it correct

  23. Kamlesh says:

    When Cross Currency Trading will be available? We have been hearing it from April 2018 that it will be available in Zerodha soon. Is there any specific date or time period?

  24. Anurag Pathak says:

    Your intention is very clear Never

  25. anil kumar says:

    Hi Karthik ,
    What will be the brokerage charges for USDINR & also for cross currency in futures

  26. Raj Vyas says:

    Can you suggest me some good of shore brokers for cross currency trading please??

  27. Harshith A says:

    Is possible to trade on currency pairs for 24 hours or only in indian trading time

  28. raj says:

    from where i can check RBI reference rate..and same is updated on site….

    • Karthik Rangappa says:

      Check on the RBI’s website, its available on their homepage.

      • raj says:

        thanx kartik for info but i am facing difficulty while calculating the settlement price

        like on 04/09/2018 i have short on contract on EURUSD FUT 26SEP 18 and kept open on next day (05/09/2018 ) my opening price reflecting as 83 and at EOD again settlement price reflect as 83.54 ….on nse site prev close reflecting as 1.1643

        Can u please tell me how the closing/settlement price derived or check post closing and opening market

        • Karthik Rangappa says:

          It gets a little tricky with Cross Currency Raj, you will have to take the change in EUR USD plus the change in the reference rate of USD INR.

  29. Jay says:

    Hi , I was informed by the zeroda call center agent on calling this no – 08049132020 . ( I got this number from zeroda website )
    that cross currency pair trading has started on Zerodha ,I asked the agent 2 times and she replied and assured yes it has started , however after I opened ac online I was informed , cross currency pair has still not started for trading .The zeroda employee that contacted me from Andheri office Mumbai told me cross currency trading will begin from November , Can I please get a true picture for the same , as the only reason I opened ac with zeroda is to trade cross currency pair . Also as the agent LIED AND gave incorrect information to me or provided me incorrect info , now due to No Access to cross currency trading I would like to close the account ,Please Assist , as I was misold , also how can I get refund of charges paid while account open

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