InvestorQ : How exactly should I trade the most liquid USD-INR pair?
Nisha Chandani made post

How exactly should I trade the most liquid USD-INR pair?

3 years ago

As traders intending to take positions in the USD-INR pair, you need to understand a basic difference vis-à-vis the equity markets. When you buy the equities, you are actually betting on the price of the equity to go up. On the contrary when you are buying the USD-INR paid, you are actually betting on the US dollar to appreciate or in other words you are expecting the INR to depreciate against the US dollar. If you are actually expecting the INR to appreciate against the dollar then you should be selling the USD-INR futures. Settlement of currency derivatives will happen on the last working day of the month which will also be the date for interbank settlements in Mumbai. Unlike commodities, all USD-INR pairs as well as pairs with Pound, Euro and Yen are all necessarily cash settled.

USD INR futures.PNG

Source: NSE

The snap shot above captures the live quotes for the December USD-INR pair and the order book shows the selling and buying depth at different price levels. You will see that subsequent ticks are at a price gap of 0.0025 paisa as mentioned earlier. The current quote of the USD-INR pair is at 70.8425. If you expect the USD dollar to appreciate to around the 74/$ level due to a possible rate hike by the Fed, then you will buy the USD-INR futures in the market. On the other hand, if you expect that the INR will strengthen due to heavy FII flows and the rupee will strengthen to 66/$, then you will have to sell USD-INR currency futures. Essentially buying the contract is a Dollar Long and rupee short. Selling the USD-INR contract is a Dollar Short and rupee long.