OI beats volumes in currency futures

Even as currency futures are struggling to gain volumes, there was some improvement in hedging on Friday, with the open interest (OI) crossing the number of traded contracts last Friday. The OI surpassed traded volumes for the first time last week after the launch of currency futures on the National Stock Exchange (NSE).

The OI is more important than the volume for the futures market. The OI is the number of contracts that have not been completed or closed.

On Friday, 40,689 contracts were traded, each valuing $1,000, while the open interest was 44,550. This is the highest-ever OI since the launch of currency futures.

In the last four trading sessions, the OI has nearly doubled to 44,550 from 23,402 on September 9.

The increase in the OI is predominantly seen in the near-month contracts, which indicates that market players are not yet taking longer calls, waiting for the first settlement to happen.

Traded volumes have almost been steady since the launch. On August 29, volumes were about 65,000 contracts, averaging at about 45,000 contracts since then.

“An increase in the OI is a good sign as some hedging interests have been seen in the market. Besides, it (OI) is more important than the intra-day trading activity. Although the retail interest is still not there, some banks are doing proprietary trading and large corporate bodies are hedging their currency risks in exchange-traded currency futures,” said Aseem Dhru, managing director, HDFC Securities.

The daily average volume of currency futures is still around Rs 200 crore, which is much lower compared with those of forward contracts traded on the over-the-counter (OTC) market.

One of the reasons for lower volumes is high margins, said Dhru.