Currency Option trading in the Currency Derivative Segment(CDS) is available in USDINR only.
The lot size of this currency pair is 1000 and lets take Rs.67 as the price at which the dollar stands against the rupee.
The pre-dominant reason why Currency Options trading is restricted to only the Normal(NRML) product type is because:
Currency Option pairs are low liquidity products.
(Low liquidity is measured by the bid-ask quantity along with the bid-ask spread.)
Lets assume a far month November contract of USDINR 67CE
If you are buying 200 lots of USDINR 67CE at 0.6575, since the lot size is 1000, it would cost you 20010000.6575 = Rs.1,31,500.
Now if you are immediately selling the 200 lots at the next trading second, 50 lots will be sold at 0.6350, 100 will be sold at 0.6325 and the last 50 will be sold at 0.6275.
It will sell at Rs.1,26,375.
Now the illiquidity becomes evident as the cost of just holding the position is Rs.1,31,500 - Rs.1,26,375 = Rs.5125.
If you wish to trade a higher lot quantity, then this cost of holding will be even higher.
In coherence with the lack of liquidity, a genuine movement is required to make measurable profits in Option Currency trading and hence only NRML positions are allowed to ensure that the position is carried forward if there is a low degree of movement.
On the flip-side, if MIS positions were allowed, and the Bid-Ask scenario didnt change by much, then as dictated by the product type MIS(Margin Intraday Squareoff) - the system will square-off all open MIS positions at Currency Markets MIS cut-off time of 4.30pm.
You have ensured a loss of Rs.5125 for just entering into a position which is not what you want.
Hope this helps, good luck!
But not all currency option are illiquid with almost all the current months cds option bid ask difference for most equal to minimum tick size. https://www.nseindia.com/live_market/dynaContent/live_watch/fxTracker/optChainDataByExpDates.jsp
Or margin requirement in case of MLS should be increased for illiquid option.
Current month contracts are liquid but we cannot ensure that clients will trade in current month contracts only. Also, it will require a complicated algorithm to block MIS for option contracts that are not liquid. This is practically not feasible.