As the Indian rupee’s fall continues unabated and currency risk increases, the arbitrage facility on the Dubai Gold and Commodities Exchange (DGCX) is increasingly being used by NRI traders, high net-worth individuals and international funds with exposure to India to manage their risk.
The best performing asset class in September was the INR product suite, which saw rupee mini futures contract record its second highest monthly average open interest of 110,020 contracts, and the INR quanto, which has traded 3,160,471 contracts year-to-date, up 51% from 2017.
Total volumes on the DGCX this year hit 17,255, contracts at the end of September, with yearly average daily volumes at their highest ever, reaching 89,873 contracts per day, the exchange has reported.
Les Male, chief executive of DGCX, said: “The rising popularity of INR trading in September follows the continued depreciation of the rupee, which has seen investors turn to more regulated markets to hedge their exposure to the US dollar.
“The robust performance of our rupee mini futures in particular is of note, with its increasing liquidity and depth of market, it is testament to the smaller sized contract’s ability to enable retail remitters, individual investors and SMEs to cost-effectively manage their currency risk.”
Contract size is variable
The exchange offers arbitrage opportunity with a conventional INR-USD contract traded and unique trading opportunity for Indians in the region and international funds with exposure to India to manage their risk.
The contract size is variable and depends on the rupee movement against the USD, making it better to take advantage on movements in the Indian currency.
Saugat Sur, senior manager, business development, DGCX, said: “Individual NRIs and companies can book the currency exchange rate at the level they think it attractive. Many a time when better exchange rate prevails in the market, NRIs may not have enough money to send to India.
By the time they get money from salary or business income, and if the exchange rate changes, they may lose the opportunity of a better rate. In this case, by putting a smaller margin they can book the exchange rate through DGCX, at a minimum of INR200,000 ($2,715;£2,080) and its multiples.
“The Indian rupee contract is the highest volume on DGCX. If you see the rupee futures contract globally traded, it comes around $15 billion per day, out of which DGCX accounts for around $3 billion,” he said.
Better for traders
The options contracts on the exchange allow market participants to hedge their rupee exposures using various option strategies as well as a combination of futures and options, said Sajith Kumar, chief executive officer of IBMC, which advises traders.
Options allow participants to take a call on the underlying INR by paying a small premium, while the option writer can benefit by taking a view on the underlying volatility of the rupee.
Forwarding booking advised
Kumar advises forward booking by individual NRIs and traders who send money to India periodically and want to book better exchange rate. People who do not wish to avail a loan from credit card issuers or banks, but at the same time want to send money to India, can book better exchange rate at lesser expense.
With the rupee fall and the corresponding increase in exchange rate in the UAE (a UAE dirham now fetches as high as INR20 when the rupee weakened to a record low of INR73.77 per USD), NRIs are flocking to the exchange houses to remit as much as they can.