Globally currency trading involves a huge turnover of money. The global forex market is presently estimated at US$ 3 trillion as per the BIS Triennial Survey Report. Recent reports also conclude that currently the Indian Forex market’s turnover is more than $ 400 billion and analysts believe that we are still in the nascent stage of achieving the full extent of our inherent trading potential.
The sporadic growth in the Indian Forex market can be attributed to many factors, the first causative factor being in the year 1978 when the RBI first gave banks approval to undertake intra-day trading in foreign currency exchange. This step resulted in the required ‘square’ or ‘near square’ position to be complied with only at the close of business every day. In the early 1990s, currency trading was subjected to a lot of restrictions by the RBI. However, the introduction of major economic reforms by the government, like the implementation of open market policies, provided the much needed positive boost to currency trading in India.
As the next critical step, the government saw the appointment of an expert committee to review the balance position.This committee looked into introducing Liberalized Exchange Rate Management System or LERMS which was introduced in 1992. This committee was made to study the Forex market in detail so that steps could be taken to widen, deepen and develop the Forex market in India.
As a result of this exercise, currency trading in banks got a significant boost and banks got the freedom to carry out currency or forex trading operations amongst themselves. The freedom given here is mainly concerned with granting banks the independence of fixing their trading limits, and being allowed to borrow and invest in overseas markets upto specified limits.
Another major advancement that took place in the Indian Forex markets was in the year 2008, when currency derivatives were added to the platform of the Nation’s largest trading stock exchange – NSE (National Stock Exchange). Addition of the currency derivatives segment propelled Indian Forex Trading at par with Global trading exchanges across the world. This not only led to significant increase in the volume of trading being carried out through our exchanges but also opened the doors to corporate as well as retail investors, who were earlier not allowed to trade extensively on the exchange.
The latest addition to the arm of Currency trading on Indian shores are Currency Futures and following their implementation into the forex trading system since a year and half, we have witnessed a series of positive changes marking their growth in the foreign exchange. Currency futures means a standardized foreign exchange derivative contract traded on a recognized foreign exchange to buy or sell one currency against another on a specified future date.
I would like to inform my readers that though the introduction of currency futures was mainly from the US-INR contracts perspective, looking at the positive trading response it received from investors, other contracts like Yen-INR and Pound-INR have been introduced as recently as January 2010.I would like to conclude by saying that currency trading in India is here to stay and the golden age of the currency exchange on Indian shores could be just around the corner.
I am a financial enthusiast keen on sharing knowledge on stock market and mutual fund related content to readers. I am passionate about currencies hence write eloquently on Currency Derivatives, forex market and exchange research related subjects.