Can You Trade Cross Currency Pairs in India?

Currency trading, often known as forex trading, is a global marketplace where traders exchange currencies. In India, this market has gained popularity due to its potential for profit.

While many traders are familiar with traditional currency trading pairs like USD/INR, there’s curiosity about cross-currency pairs. These pairs involve currencies other than the Indian Rupee, opening up diverse trading opportunities.

Can you trade cross-currency pairs in India? Yes, you can trade cross-currency pairs in India. Let’s discuss this more to understand.

What are Cross Currency Pairs?

Cross-currency pairs involve trading two currencies without involving the US dollar. In the global forex market, they provide diverse trading options beyond major pairs.

In India, cross-currency pairs offer flexibility and risk management, allowing traders to navigate currency fluctuations. They contribute to a more comprehensive forex market by including currencies like Euro, British Pound, and Japanese Yen, expanding opportunities for investors.

Trading Cross Currency Pairs in India: Regulations and Opportunities

Forex trading is regulated by the Reserve Bank of India (RBI) in India. Residents can trade currency pairs within the approved framework. However, direct trading of cross-currency pairs, like EUR/USD, is restricted for retail traders.

However, the stock trading platforms allow you to trade in them via derivative products like currency futures and options, allowing users to indirectly trade cross-currency pairs. 

Brokers simplify this process, making it accessible for Indian investors while adhering to regulatory guidelines set by the RBI and SEBI.

Dhan: A Comprehensive Platform for Currency Trading

Dhan is a share market application that offers currency trading. Dhan is a SEBI-registered discount stock broker. Dhan offers a variety of services, including: 

  • Stocks
  • ETFs
  • Options
  • Futures
  • Commodities
  • Currency Trading

Dhan allows users to trade and invest in multiple currencies using the Dhan app. Dhan offers seven currency pairs for trading derivatives, including: 

  • USD/INR
  • EUR/USD

Dhan charges ₹20 per trade or 0.03% per transaction for intraday trading. The charges for trading currency futures and currency options are also ₹20 per trade. 

Strategies and Risks in Cross-Currency Trading

Some strategies for cross-currency trading are:

1. Cross-currency swap

Cross-currency swap strategy hedges the risk of high interest rates. The parties involved can agree to a fixed interest rate to avoid losses from market drops.

2. Forward contracts

It involves two parties agreeing to exchange a specific amount of one currency for another at a predetermined rate on a future date. This can mitigate the risk of currency fluctuations.

3. Carry trade

This strategy involves profiting from the difference in interest rates between the base and secondary currencies in a forex pair.

4. Currency hedging

This involves holding foreign currency earnings in the same currency. This protects earnings from a currency’s value dropping.

Some risks in cross-currency trading include:

  • Transaction risk: This is the risk that the exchange rate will change between the date of the agreement and the settlement date.
  • Jurisdiction risk: This risk arises when laws unexpectedly change in the country where the exporter is doing business.

Other risks in cross-currency trading include Translation risk and economic risk.

Conclusion

In India, trading cross-currency pairs is allowed through the introduction of currency futures and options. The market offers opportunities to engage in transactions involving different global currencies.

However, it’s crucial for traders to stay informed about regulatory guidelines and market conditions. Always consult with financial experts and adhere to legal frameworks to navigate the landscape of cross-currency trading in India.

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