Module 8 Currency & Commodity Futures

Chapter 18

Cross Currency Pairs


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

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

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.

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


  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….

    • Karthik Rangappa says:

      Try and get hold of Alaxender Elder;s ‘Trading for a living’ book. An average trader cannot achieve financial freedom by trading, at the most he will entertain himself by placing few trades here and there. You need to go beyond this. One needs to elevate himself and achieve a higher degree of understanding of markets. This happens by constantly learning and practicing what you’ve learned.

      Good luck.

  4. hiren says:

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    Taxation part looks quite outdated now, needs update now.

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