General FAQs

1. What is BSE-CDX?

   The Currency Futures Trading System of Bombay Stock Exchange Ltd. is called BSE-CDX (BSE Currency Derivatives Exchange)

2. What are Currency Futures?

   Currency Futures traded on BSE-CDX
   
   
   • are standard contracts of a specified quantity
   • to exchange one currency for another
   • at a specified date in the future called settlement date
   • at a price that is fixed on the purchase date called futures price

3. Why trade in Currency Futures?

   Currency Futures allows investors to take a view on the movement of the Indian Rupee (INR) against other currencies.

4. What is the other Currency Derivatives traded on BSE-CDX?

   Currently, only Currency Futures are allowed to be traded by SEBI.

5. What do we mean by Currency Forward?

   A currency forward contract is traded in the over-the-counter market usually between two financial institutions or between a financial institution and its client

6. How does the Indian Forex market work?

   The Foreign Exchange Management Act is the law which regulates the Forex market. The regulatory authority for the Indian Forex market is the Reserve Bank of India (RBI). However, the Exchange Traded Currency Futures market is regulated by SEBI through the recognized stock exchanges.
   
   Authorized Dealers (ADs) licensed by RBI can participate directly in the Forex market. These are usually Scheduled Commercial Banks. A set of participants who are the Full Fledged Money Changers (FFMCs) have been granted license to undertake certain currency transactions with the general public
   
   

7. What is the meaning of currency appreciation and depreciation?

   Suppose today we have rate INR 43/USD, when we say rupee is appreciating against US Dollar then the value of rupee may be INR 42/USD or anything less then INR 43/USD. It means now we can buy 100 USD in INR 4200 instead of INR 4300, so we are paying less.
   
   Now suppose today we have rate INR 43/USD, when we say rupee is depreciating against US Dollar then the value of rupee may be INR 44/USD or anything more then INR 43/USD. It means now we can buy 100 USD in INR 4400 instead of INR 4300, so we are paying more.

8. What volatility have we observed in the Indian Forex market?

   The period beginning 1993, when the Indian Rupee moved away from an administered exchange rate, was a period of low currency volatility. This was followed by a period of high volatility during the Asian crisis after which the period again witnessed low volatility, followed yet again by a high volatility period.

9. What is Counter-party or Credit Risk?

   The ICCL (the Clearing Corporation of Bombay Stock Exchange Ltd.) gives an unconditional guarantee for the net settlement obligations of all clearing members in the currency derivative segment. As such, in case of default of a clearing member, ICCL becomes counter-party for his net settlement obligations and thus other market participants remain unaffected.

10. Who can trade in the Currency Futures Market?

    Except FIIs and NRIs, every individual/corporate/institution/bank etc. is allowed to trade in the Currency Futures market.

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    Trading on BSE-CDX

1. Which currencies are allowed to trade on BSE-CDX?

   To begin with, only US Dollar ($) futures is being traded against the Indian Rupee (INR). The contract for say the month of September will be called USDSEP2008.

2. What are the trade timings on BSE-CDX?

   The Currency Futures are presently available for trading from 9.00 am till 5.00 pm Monday through Friday.

3. How many contracts are available for trading in BSE-CDX?

   There are 12 near calendar months contract available for trading along with spread contracts for every combination.

4. What is a Spread Contract?

   Spread Contract are positions where by a trader takes a long /buy position in one month and short/sell position in the second month through one single order.

5. How will the USD/INR be quoted/ traded on BSE-CDX?

   • On BSE-CDX, the underlying value is the rate of exchange between one unit of foreign currency and Indian Rupee.
   • USD is the base currency and the variable currency is INR.
   • One unit of USD (One Dollar) is priced in terms of INR.
     Example: 1USD = INR 41.8525/8550
   • The tick size or minimum variation is INR 0.25
     Example: If the last order was INR 42.1525, the next order will be either INR 42.1550 or INR 42.1500.

6. What are Lot Size/Contract Size in BSE-CDX?

   The minimum Lot Size/Contract Size is USD 1000 (and in multiples of USD 1000 thereafter).

7. How do I trade futures BSE-CDX?

   The minimum Lot Size/Contract Size is USD 1000 (and in multiples of USD 1000 thereafter).
   
   
   • You can trade on the BSE-CDX only through a BSE Member (broker) who has registered for the Currency Derivatives segment.
   • You can also trade through the internet trading platform provided by BSE Members.

8. How can I sell a Futures Contract before I own it?

   You do not need to own the underlying currency when you enter into a futures contract. The contract simply represents a commitment to either sell or buy the asset on the set expiry date.

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    Settlement

1. Are all Future Contracts deliverable?

   The Currency Futures on BSE-CDX are cash-settled.

2. What will be the Settlement Price?

   The Reserve Bank Reference Rate on the date of expiry will be the Settlement Price.

3. Which day will be the Settlement Day?

   The Currency Futures contract would expire on the last working day (excluding Saturdays and FEDAI holidays) of the month.

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    Risk Management

1. What type of margins are levied?

   The four types of margins mandated by SEBI are Initial Margin, Extreme Loss Margin, Calendar Spread Margin and Mark-to-Market Margin.

2. What is the Initial Margin?

   The Initial Margin is 1.75% on the first day of currency futures trading and 1% thereafter

3. What is Extreme Loss Margin?

   Extreme Loss Margin is 1% on the Mark-to-Market value of the Gross Open Positions

4. What is Calendar Spread Margin?

   Calendar Spread Margin is Rs. 250.00 for all months of spread. The benefit for a calendar spread would continue till expiry of the near month contract

5. What is Mark-to- Market Margin?

   Mark-to-Market margin is the daily profit or loss obtained by marking the Member's outstanding position to the market.

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    Position Limit

1. What is the Position Limit at Client, Trading Member and Clearing Member Level?

   • Trading Member Level: The gross open positions of the Trading Member across all contracts cannot not exceed 15% of the total open interest or USD 25 million, whichever is higher. However, for banks who are Trading Members, this cannot exceed 15% of the total open interest or USD 100 million , whichever is higher
   • Client Level: The gross open positions of the client across all contracts cannot exceed 6% of the total open interest or USD 5 million, whichever is higher. BSE Exchange will disseminate alerts whenever the gross open position of a client exceeds 3% of the total open interest at the end of the previous day's trade.
   • Clearing Member Level: No separate position limit is prescribed at the level of the Clearing Member

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