Currency futures are contracts to exchange a certain amount of a particular currency at a specific exchange rate on a specified date.

It is exactly like a futures contract on Nifty. Here the underlying commodity is a currency exchange rate, such as an Indian Rupee to US Dollar exchange rate.

Up to now currency swap and currency options were not traded on recognized stock exchanges. In India they were available on (Over the Counter) OTC market with certain restrictions.

There were certain limitations and disadvantages in OTC trading in currency market and hence (Reserve bank of India) RBI came out with circular as on April 2007 for introduction of exchange traded currency future and options.

In case of OTC market all are not allowed to trade. Which is not the case Exchange traded currency future with (ETCF), an individual (not NRI’s) or Corporates, regulated schedule banks (subject to approval from their regimes) can take the positions.

Settlement of OTC forward currency contracts takes place only on maturity, which is not in the case of ETCF. There will be daily Mark to Market settlement between buyer and seller. There is no counter party risk of non-obligation due to intermediatory like clearing corporation which is guarantor to both the parties. It is open to large and small investors due to optimum market lot size.