Punters cash in on dollar-euro play with bets on stock exchanges

MUMBAI: A few well-heeled individual investors and some small-sized importers-exporters have raked it in by taking punts on the dollar-euro through trades on domestic stock exchanges like NSE, BSE and to a lesser extent Metropolitan Stock Exchange of India, or the erstwhile MCX-SX.

A punter or equity market investor holding a view that the dollar would strengthen against the euro (or vice versa) buys a dollar-rupee futures contract and sells the euro-rupee futures contract (or vice versa). She sells the rupee to buy the dollar and simultaneously punches a trade to sell the euro and buy the rupee, effectively making her long dollar and short euro.

“The euro has trended lower to the dollar in the March quarter, making trades of buying dollar and selling euro on our exchanges through a rupee leg quite sensible,” said Suresh Nair, director, Admisi Forex.

The dollar appreciated by almost 13% to 0.82 against the euro in the March quarter, resulting in HNIs and retail clients doing such trades, ending up making a neat profit, according to Harish Galipelli, research head (currencies) at Inditrade Capital.

Stock bourses give domestic retail participants the ability to undertake such trades they otherwise can’t dream of doing for want of access to the interbank market, dominated by banks and large corporates. While exchanges like NSE, BSE and Metropolitan offer dollar, euro, Japanese yen and GBP futures and options versus rupee respectively on their platforms.

The rise in punts is borne by an increase in the number of contracts traded in the euro-rupee counter on NSE to 75,000 a day in the March quarter from 50,000 contracts a day in the preceding quarter. It is also buttressed by the decline in open interest to volumes ratio in the euro-rupee pair and the dollar-rupee cross.

Open interest (OI) is an outstanding buy or sell contract while volume reflects the number of contracts traded daily. In euro-rupee, the OI to volume ratio declined from 1.1 in the December quarter to 0.78 in the March quarter.

This means there was 0.78 contract outstanding for every contract traded, down from 1.1 contract outstanding per unit of contract traded. Put simply, ahigher OI to volumes ratio indicates a market in which hedgers dominate, while a lower than one ratio shows that speculators hold sway.

In the dollar-rupee pair, the ratio, though still showing strong physical market participation, declined to 1.6 in the March quarter. NSE is the market leader in the currency derivatives segment enjoying around 60% market share.

The dollar-rupee futures is also the most liquid on the bourse, which attracts corporates, retail HNIs, banks and FPIs. A client can take a maximum of $10 million exposure or 6% total open interest, whichever is higher, in the dollar-rupee cross. In the euro-rupee cross, the exposure is ¤5 million or 6% of total OI, whichever is more.