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Currency & Forex Market In India

Published by Usman Ahmed, MBA (Researcher)

Reviewed by Bowen Khong, ACCA

While currency traders in India face many restrictions from the government, still it is thriving rapidly all over the country. Indian traders are not allowed to participate in spot currency trading. They can however trade currency trading derivatives such as options, futures, swaps, spread-betting etc.

The Indian Foreign Exchange Market – Overview

The Indian Foreign Exchange market comprises three main participants, including traders, mediators, and the market – read: Structure Of Foreign Exchange Market In India. The reserve bank of India (RBI) is the prime financial regulator of the country. The foreign exchange market in India is regulated under the FEMA Act – 1999. Mumbai is the financial hub of India. Other financial centers across the country include Kolkata, Chennai, New Delhi, Pondicherry, Bengaluru, and Cochin.

All resident individuals/HUFs and institutional investors meeting the FEMA criteria can trade currency derivatives in India.

Amid liberalization, Foreign Exchange Markets in India have experienced enormous growth. It all began in February 1992, when the Indian forex market started making the Rupee convertible and introduced a single floating exchange rate. 

Ever since the country incorporated the Indian International Exchange in 2017, the trading volume witnessed tremendous growth. As per a report published in the Economic Times of India, the NSE claimed a considerable increase in the trading turnover. According to the National Stock Exchange (NSE), the introduction of rupee derivatives in the International Financial Services Centres (IFSCs) was crucial for Indian financial markets’ development.

Exchanges that Support FX Derivatives 

Besides the Metropolitan Stock Exchange of India (MSEI), Indian International Exchange (India INX), and two other national-level exchanges facilitate trading in currency derivatives. These exchanges include the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).   

In addition to trading equity and commodity derivatives, traders can trade multiple currency derivatives on each of the exchanges mentioned above. 

In India, currency derivatives include futures and options in four major currency pairs. i-e, GBP/INR, JPY/INR, USD/INR, and EUR/INR. Not to mention, other cross currency pairs, including GBPUSD, EURUSD, and USDJPY, also make part of the permissible currency derivatives (futures only). 

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1) National Stock Exchange of India (NSE)

Established in 1992, the National Stock Exchange of India (NSEI) is the largest financial exchange in India. In addition to offering settlement and clearing services, It facilitates companies to raise capital funding through initial public offerings (IPOs), Indian Depository Receipts (IDRs), and debt issuances. It also enables investors to access multiple financial instruments, including currencies, mutual funds, equities, and debt. 

NSE functions are as under;

  1. To establish firms that offer trading across multiple asset classes. 
  2. To serve as a national communication platform enabling investors to participate in the trading system without any geographical discrimination.
  3. To meet or exceed the global standards defined for the foriegnl exchange markets.
  4. To ensure a short settlement period and enable the book-entry settlement system.

2) Bombay Stock Exchange (BSE)

Being the first largest securities market in India, the Bombay Stock Exchange (BSE) has more than 6000 listed companies. In 1975, the exchange was founded as an association of shares and stockbrokers. It is situated in the Dalal Street of Bombay, India. It is a part of the group of the world’s largest exchanges, including Nasdaq, New York Stock Exchange, Japan Exchange Group, London Stock Exchange Group, and Shanghai Stock Exchange.

The exchange holds credit for providing ground for the development of capital markets of India. It helped in setting up the retail debt market in India and favored the corporate sector to grow. It also holds the honor of being the first stock and equity market in Asia. Besides offering trading platforms to SMEs, the exchange offers a diversified range of services, such as risk management, clearing, and settlement services. 

BSE functions are as under;

  1. To develop capital markets in India and provide efficient platforms to corporations for capital fundraising. 
  2. To ensure fast trade execution by providing a robust electronic trading system. 
  3. To enable investors to trade across multiple classes of assets, including currencies and equity derivatives, debt instruments, mutual funds, etc. 

3) India International Exchange (India INX) 

The Indian International Exchange (India INX) is the first international stock exchange of India. Founded in 2017, the exchange is based in Gujarat, India. The Bombay Stock Exchange Limited is the parent exchange of India INX.  

Incorporating super-advanced technology, it is the fastest exchange of India known for a four micro-second turn-around time. The Indian International Exchange remains open six days a week with 22 hours of operations, enabling NRIs and international clients to trade at their convenience. As an estimate, it undergoes a daily trading turnover of ₹74,509 crores. The exchange also holds the listing of bonds of the Asian Development Bank. 

Indian INX functions are as under;

  1. To help India to compete with other International Financial Centers (IFCs), including Singapore, Dubai, London, Hong Kong, and New York.
  2. To provide grounds for enabling the corporate sector to hedge their funds inside India.  
  3. To provide recommendation and facilitate the process of devising an action plan for international stockbrokers to set up their offices in the Indian Territory. 
  4. To enable international clients, including individuals, trusts, and institutions to trade currency derivatives and other financial instruments. 

To learn about the future of Indian Rupee click here, and if you want to know why Rupee is weak against the USD click here and when will it strengthen against the USD here.

Usman Ahmed, MBA (Researcher)
Usman Ahmed, MBA (Researcher)
Usman Ahmed is a currency trader and financial market analyst with more than 7 years of active trading experience. Besides holding a Masters degree in Business Administration, he has worked for some of the most renewed companies in the forex industry including FXCM, IQOption, MetaQuotes, Alpari, FXStreet, DailyFX and several others. Usman possesses strong technical analytical skills and is famous for his very own, informative and entertaining, writing style. He believes in naked chart trading analysis that is commonly known as price action trading. He follows global financial news and macro-economic events very closely.
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