What are Currency Derivatives?

Currency derivatives are future contracts between buyers and sellers that involve the exchange of two currencies at a future date at a pre-defined rate. It’s suitable if you are interested in reducing the foreign exchange rate risk.

Currency derivatives are one of the best options to manage volatility of foreign currency’s exchange rate. In other words, they hedge against currency movements and fluctuations.​


How to trade in Currency Derivatives with us?

At SBICAP Securities Ltd., our mission is to make investing in markets simple and hassle-free for our customers. All you have to do open a Demat and trading account and use our state-of-the-art online platforms to experience seamless trade in currency derivatives.

Through SBICAP Securities Ltd., you can trade in currency derivative contracts to hedge against currencies like US Dollar, Euro, U.K. Pound and Japanese Yen.​


What types of Currency Derivative Instruments are available for trading?

Futures is a derivative financial contract through which you can transact any asset at a specific date and price.  The delivery and payment made on the future date is called delivery date. If you are a buyer in the futures contract, you are known to have held a long position. On the other hand, the seller is known as having a short position. Currency Futures are available for trading in exchanges for the participation of retail investors, corporates, hedgers and many more. Bonds, stocks, currencies, commodities, etc., could be the underlying asset of the futures contract.


Options, too, are financial instruments that are derivatives, which are based on the value of underlying securities. Here, unlike futures, the holder is not obliged to buy or sell the assets, if he/she chooses not to. There are two types of options namely:​
Call option: It allows the holder to buy an asset at a specific price within a pre-determined time frame. In other words, you’ll get the right (but not the obligation) to buy a given quantity of an underlying asset at a specific price on or before a pre-determined future date.​
Put Option: With a put option, the holder can sell the asset at a stated price with a specific time. To put it simply, you’ll get the right (but not the obligation) to sell a given quantity of an underlying asset at a specific price on or before a pre-determined future date.


Different types of Currency Derivatives offering:

Normal (Carry – Forward):
Through this type of currency derivative offering, you can conduct settlement-based commodity trading by buying or selling positions in futures or options and holding the positions beyond the current date up to specified expiry date.
However, if you find that it is advantageous for you to close the position before the expiry date, you can even square it off.​
Here, buying and selling stocks takes place on the same day. Equity shares and stocks in intraday trading are brought or sold with the objective of making a profit by leveraging the movement of stock indices.
Intraday trading allows you to reap the rewards of daily market movements and trade in stocks for a limited time on a particular day. This allows you to take advantage of intraday movements in the share’s price on the same day, without the need to take delivery of those shares.​


Cover order:
Cover order is always accompanied by a Stop Loss Order. As there’s a compulsory Stop Loss Order, the risk is automatically reduced because of which the margin requirement is also reduced, thus giving you more leverage for intra-day trading.
For intraday trader, a Cover Order brings discipline in the trading activity. It’s essential to keep in mind that when you place a Cover Order, you can’t cancel the Stop Loss Order as it renders the entire concept futile.​
After-Market Orders:
If you were busy throughout the day and were unable to place an order, you can do so through After Market Order (AMO). AMO allows you to place an order after the normal market orders and gives you the flexibility to take time and place an order after research.
Also, undertaking this activity relieves you from the process of tracking movements of equity shares on a real-time basis.​