There are many benefits that you can reap from trading Currency Derivatives apart from it being a very effective tool in risk management.

The benefits include but are not limited to the following:

  1. Speculation – You can use the Currency Futures to speculate on the possible short term markets’ movement. For example, in the event that you believe that the oil prices will go up and consequently affect the national import bill of India, you can decide to buy USDINR hoping that the INR will depreciate. You can alternatively sell the USDINR if you’re indeed convinced that the INR will appreciate for one reason or the other.
  2. Hedging – You can hedge possible losses while at the same time protecting your foreign exchange exposure simply by making sure that you’ve put in place appropriate positions. For instance, in the event that you’re importing and making your payments in USD in a future date, you can hedge against any foreign exchange losses simply by buying USDINR. You’ll also need to fix or rather place your pay rate today.

You can decide to hedge in case you think that the USDINR will depreciate. At the same time, it would be wise for a borrower to hedge foreign currency (FCY) loans for interest and principal payments and exporters to hedge their future receivables.

  1. Leverage – You can pay a certain percentage value as an alternative of the whole value, something which will allow you to trade in your currency derivatives.
  2. Arbitrage – You can take advantage of the current currency exchange rate in various markets and make yourself some really good profits.