Trading the $-INR pair

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As far as the Indian currency pairs are concerned, the USD-INR is the most popularly traded pair. So, it’s this currency pair that we’re going to focus on in our chapter. How do you trade the USD-INR pair? Keep reading to find out.

Trading the USD-INR pair in the spot market

USD-INR trading in the spot market is quite like buying a share, holding it for a while, and selling it when the prices increase. You buy the USD-INR pair from the spot market and hold it till the rate rises. Then, you sell it for a higher price for a decent profit. Or, if the USD-INR plummets steeply, you may perhaps sell off your holdings to prevent deep losses.

For example, say the USD-INR pair is currently priced at Rs. 70.00 in the spot market. You purchase 100 USD for Rs. 7,000. A week or two later, you see that the USD-INR rate is Rs. 75.00. So, you quickly sell your 100 USD for Rs. 7,500, making a profit of Rs. 500 in the process. That’s how you trade this pair in the spot market. 

But traders generally prefer to dabble in the derivatives market, mainly because the leverage is high out there. In this segment, you can trade in USD-INR options or futures. 

Trading USD-INR options

Since they are derivatives, USD-INR options are traded in lot sizes of $1,000. You’ll recall that when you are trading in options, you need to pay a premium if you’re the buyer of the options contract. Let’s look at a USD-INR option contract to understand the payoffs.

You can see the live quote for the July 2020 USD-INR call options contract in this snapshot. The strike price for the pair is 76.0000. The premium per USD for that contract is Rs. 0.1525. If you expect the USD value to go up in the future, you will purchase a call option today, right?

Let’s look at what happens during expiry at different possible exchange rates of the USD-INR pair.

A

B

C

D

E

F

Possible USD-INR rate at expiry 

Strike price

Premium paid per $

Will you exercise the option?

Profit or loss from 1$



(A-B-C) if the option is exercised

Total profit or loss

(in rupees)


(C x $1,000)

78.0000

76.0000

0.1525

Yes

1.8475

1,847.50

76.0000

76.0000

0.1525

Doesn’t matter

(0.1525)

(152.50)

72.0000

76.0000

0.1525

No

(0.1525)

(152.50)

So, you see how you make profits when the rate goes up, but your loss is limited to the premium when the rate falls? This is just like equity options, isn’t it?

When you expect the prices to go down, you could buy a USD-INR put option instead. That way, you can sell high and then buy low, making a profit if your expectations turn out to be right.

Trading USD-INR futures

Being derivatives, USD-INR pairs are traded in lot sizes of $1,000. You’ll recall that to trade in futures, you’ll need to pay a margin that’s a specific percentage of your total contract value. Let’s look at a USD-INR futures contract.

This snapshot shows you the live quote for the July 2020 USD-INR futures contract. The current quote for the pair is 75.3950. If you expect the USD value to go up in the future, probably due to a favourable economic scenario,  you’ll likely purchase this contract today. 

Let’s look at what happens during expiry at different possible exchange rates of the USD-INR pair.

A

B

C

D

Possible USD-INR rate at expiry 

Futures price

Profit or loss from 1$



(A-B)

Total profit or loss

(in rupees)


(C x $1,000)

78.0000

75.3950

2.605

2,605

75.3950

75.3950

0

0

72.0000

75.3950

(3.395)

(3,395)

See how you make a profit from your future when the rate goes up? Similarly, if you expect a bearish trend, selling USD-INR futures would be a good strategy. That way, you’ll stand to gain if the markets dip.

Wrapping up

That’s how USD-INR trading works. In this manner, you can trade a number of other global currencies as well, like the pound, euro, yen, and more. In our next chapter, we’ll venture into the details of trading in these currencies. 

A quick recap 

  • As far as the Indian currency pairs are concerned, the USD-INR is the most popularly traded pair.
  • Trading the USD-INR pair in the spot market is quite like buying a share, holding it for a while, and selling it when the prices increase. You buy the USD-INR pair from the spot market and hold it till the rate rises. Then, you sell it for a higher price for a decent profit. 
  • You can also trade in USD-INR options. These derivatives are traded in lot sizes of $1,000.
  • If you expect the USD value to go up in the future, you will probably purchase a call option today. 
  • When you expect the prices to go down, you could buy a USD-INR put option instead. That way, you can sell high and then buy low, making a profit if your expectations turn out to be right.
  • Or, if you expect the USD value to go up in the future, probably due to a favourable economic scenario,  you’ll likely purchase a futures contract today.
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