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Commentary

Currency Derivatives Trading Hits 38,000 cr. per day in June 2013

When you were not watching, the NSE currency derivatives market has gone absolutely berserk.

With more than 38,000 cr. ($6 billion now) being traded daily (average) in June, this is the highest month on record by a large margin. Even if you didn’t count this month, it looks like the Currency market traded more than the Cash Markets, or the Index Futures market (Nifty, Bank Nifty and the like).

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One of the main reasons is leverage. The Cash market is settled every day, so you get leverage only intra-day. The Index futures markets get 10X leverage, overnight, so you can have positions worth Rs. 10 for every Rs. 1 in margin.

The Currency derivatives markets used to give you a 20x leverage. This has been cut to about 10x leverage from July 11, 2013 (could even be lower, depending on how SPAN works out).

Two points come out. For the last four years, the NSE index and cash market volumes have been falling or stagnating. And it seems that new business has moved into currency trading instead.