Currency Options -vs.- Equity Options: Keep these points in mind while trading

Dharam Chand Sethia Blog 1 Comment

Currency Options has gained volume and are now fairly liquid exchange traded market in India. Currently both our leading exchanges NSE & BSE have enough volume and provide excellent opportunity for traders looking out for a macro product after Nifty & Banknifty.

In Indian Option market Nifty Options had the maximum share in terms of Volume & Open Interest till recently. In last few months Banknifty has slowly started taking that space — thanks to the weekly expiry cycle.

One reason for this liquidity among these indices is their appeal as macro product.On similar lines we have currency- USDINR options. Since their inception we have come far in terms of daily Volume and Open Interest(these 2 indicates acceptance of the product among market participants)

In the following points I am trying to compare the two products here for relative perspective –

  1. Exchanges — NSE is the leader in equity & index options product, whereas in currency both exchanges are having almost equal market share. So a trader should look at the quotes and order filling possibility in both exchanges. In terms of innovation in this space BSE is doing really good job, though time will tell the rest of the story.Currency Options
  2. Timings — Equity F&O market remains open from 9:15–3:30.Currency Option market starts at 9:00 AM and closes at 5:00 PM. After 3:30 volume in the currency market picks up as a lot of equity traders shifts their attention to currency market.
  3. Minimum Lot Size -SEBI has prescribed a minimum lot size of 5 lac in the equity F&O segment, however in currency segment minimum lot is $1000, i.e. at 69 USDINR the value of 1 lot is Rs 69000. If you are beginning in the markets and are looking for a place between paper trading and large lot sizes of Equity F&O Contracts — this would be a good place to explore
  4. Settlement —
    1. Time –  Last trading day is two working days prior to the last business day of the expiry month at 12:30 pm.In equity segment it is last Thursday of the month.
    2. Price – Final settlement Price in equity F&O segment is last 30 minutes Volume weighted average Price.In currency final settlement price is RBI reference price of the day. RBI’s mechanism — The rate for spot US Dollar against the Indian Rupee will be computed on the basis of the Volume Weighted Average of the actual market transactions that have taken place during a randomly selected 15 minute window between 11.30 a.m. and 12.30 p.m. every week- day (excluding Saturdays, Sundays and Bank Holidays in Mumbai).
  5. Market data Vendors — For equity segment there are a lot of vendors giving data in a refined and structured way. However Currency segment has not been able to attract the attention of data vendors. Exchanges’ website remains the best source for the data. It’s easier to find reliable charts at online platforms for F&O but in currency. So talking about volatility data of currency will be futile task.(In my trading experience i have traded currency at 3.5–8 % volatility)
  6. Tick Size — Minimum tick size is 0.05 paise in F&O and 0.0025 in currency.For example a lot size of 1000, 1 tick value =Rs.50.For currency 100 lots 1 tick = Rs.250.
  7. Transaction Charges – A very big difference in charges comes from non levy of STT on currency derivatives and encouragement by the exchanges to increase the participation.Current transaction charges by BSE on currency segment are –Transaction Charges

These are some of the operational details about Currency market.When it comes to trading it is affected by many factors including the following-

  1. RBI (daily operations & Interest rate decisions)
  2. Government(Big Political & Policy changes)
  3. OIL, Inflation and large deal flows

For Traders – It is said that Technical analysis works far better in Currency than equity segment.

We may have missed some important parts.Please do share them in the comment section.

Happy Trading

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