Thread by @vikas_bazaz

Sometimes, regulatory changes have asymmetric impact on different products within same eco-system. Peak margin seems to be one, having salutary effect on currency volume on Indian exchanges.

Currency volumes on Indian exchanges (NSE + BSE) seem to be gaining momentum this year, after an almost flat volume growth over the last 3 years. Until June end, ADV is up by almost 31%.

But what is interesting to note is increasing option share in total volume.

Since Dec'20, when peak margin got introduced, option share in total volume (futures+option) is slowly inching up, thanks to increasing interest in weekly options contract + possible peak margin effect.

While peak margin is pushing traders to look for alternative product, what makes the case interesting for currency, are certain advantages that it offers over others.

Got curious. Let's understand what are those benefits.

1) Low Margin - Most of the currency pairs have margin ranging from 2.5% to 5%, depending upon pair & volatility.

However within this, USDINR has the lowest margin of all pairs traded on Indian exchanges, ranging from 2.5% to 3%. On per lot basis, it comes to around Rs. 2000.

In addition to this, if one takes hedge position, get margin benefit as well.

For eg. - if a long futures position in USDINR is hedged through a put, margin requirement falls to 1350/1450 per lot. Similarly for call spread, it falls to 600/700 per lot for the strategy.

2) Smaller Contract Size - Except GBPINR, most of the contracts are of less than 1 lacs, making it easier for anyone to try with margin varying between 2000 to 5000 per lot, across all pairs.

3) No STT/CTT - thereby making currencies one of the cheapest products to trade on Indian exchanges, in terms of transaction charges.

Not only this, even stamp duty is just Rs. 10/- cr and that too only on buy side. Remember, lower the cost, lower the impact cost.

Lower charges becomes more interesting with our #TraderFreePlan, where intra-day is free and just Rs. 20 per order on carry forward.

Want to know more about the plan, can read here

kotaksecurities.com/kotak-trade-fr…

4) Weekly expiries have been a huge success in India and USDINR has a fairly liquid weekly options expiring every Friday.

If you are an expiry trader, can use the same margin in currency on Friday once it gets free on Thursday after equity expiry.

On top of it, in equity F&O, options share is more than 90%. Against this, currency options share is just 57% and gaining momentum. Matter of time before currency options also see 90% share.

Starting early can be advantageous.

5) Cash Settled Contract - No hassle of delivery and can carry position into expiry. Not only this, all contract settles at RBI Reference Rate at 12:30 pm.

6) Longer trading hours - 9 am to 5 pm, thereby giving more time to react to any news, and additional one and a half hour, over and above equity.

If these benefits excite you and want to know more about currency, can refer to our webpage and FAQ

kotaksecurities.com/investment-pro…

And YES, if you are still with me, don't miss to read, what to track to trade USDINR.

Let's be a part of growing FX community. Learn, Adapt and Grow.
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