SUPPOSE I WANT TO HEDGE 5000 LOTS IN CURRENCY FUTURE "TOTAL MARGIN" REQUIRED 31 LAC.BUT I AM ROOKIE IN HEDGING SO I DON'T UNDERSTAND THAT 31 LAC ONLY REQUIRE AT TIME OF TRADE OR FULL MARGIN
PLEASE CLARIFY PROCESS OF HEDGING AND MARGIN DEDUCTION METHOD
Vikram,
Hedging is reducing the risk.
So if you are an exporter, your risk is if currency appreciates. So if USDINR is at 60, and assume you export clothes. You agreed to export Rs 1 crore worth of clothes, when USDINR was at 60 for which you will be paid in dollars say around $170,000 or Rs 1crore. If tomorrow the rupee appreciates to 55, you will get $170,000, but the value of that in Rs will be only Rs 93.5lks (170 x 55). This is the risk you run as an exporter, and hence to hedge this risk you can short 170 future contracts ($170,000) of USDINR the day you got into the deal.
Similarly if you are an importer, you can buy currency future contracts.
This is a true hedge. Buying futures and then if when making a loss, buying another contract, hmm.. is not really a hedge. You rather exit your future positions than buy something else to make it right.
You can check Zerodha SPAN to know the exact marign requirements. Margin for 5000 lots is around 71lks.
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Pls let us know the breakup of the total margin of 31lac, i.e., how did u arrive at tht amt. Also, let us know wht u did whn u say ‘hedge’.
Nithin, u got mistaken abt my comment instinctively as u hv addressed me in the answer. I am very well aware of wht/how of hedging. I was trying to gather specific details abt the query asked, instead of jumping to answer vaguely without correct details.