Cross-currency derivatives on Zerodha

Cross-currency derivatives are exchange-traded futures and options that price one foreign currency against another, EURUSD, GBPUSD and USDJPY, with no Indian rupee leg, traded on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) under the joint oversight of SEBI and the Reserve Bank of India . NSE and BSE launched them on 27 February 2018, after SEBI cleared the products in circular SEBI/HO/MRD/DP/CIR/P/2018/05 dated 15 January 2018. Zerodha gives clients access to all three pairs through Kite once the currency derivatives segment is active.

The defining feature is what is absent. USDINR, EURINR, GBPINR and JPYINR all carry the rupee as the quoted-against currency, so a position is a direct bet on the rupee. EURUSD, GBPUSD and USDJPY carry no rupee at all. A trader holding EURUSD is taking a view on the euro against the US dollar, the same pair quoted on the global interbank market, except that the contract is standardised, exchange-cleared, and the profit or loss lands in the account in rupees. This article sets out the three pairs, their contract specifications, the settlement mechanics that convert a non-rupee price into a rupee ledger entry, margins, the position-limit rules, and a point-by-point contrast with the INR pairs.

Conflict-of-interest disclosure. This article is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this article does not carry it and earns no referral commission from the trading described here.

The three cross pairs and what they price

A cross-currency pair quotes one currency directly against another without routing through the rupee. NSE and BSE list three:

In EURUSD a price of 1.0850 means one euro buys 1.0850 US dollars. In GBPUSD a price of 1.2700 means one pound buys 1.2700 dollars. In USDJPY a price of 157.20 means one dollar buys 157.20 yen. These are the same conventions the global foreign-exchange market uses, which is the point: the contracts let an Indian resident trade the major crosses on a SEBI-regulated, RBI-overseen, exchange-cleared venue instead of the offshore OTC market that residents are barred from for speculation.

The euro accounts for the largest share of global foreign-exchange turnover after the US dollar, and EURUSD is the single most-traded pair worldwide on the interbank market, per the Bank for International Settlements 2022 Triennial Survey. That global depth does not carry over to the Indian exchange listing, where USDINR dominates and the cross pairs sit well behind it on volume.

Why there is no INR leg

The INR pairs and the cross pairs answer two different questions. USDINR answers “what happens to the rupee against the dollar”. EURUSD answers “what happens to the euro against the dollar”, a question with no rupee in it. SEBI introduced the cross pairs in 2018 precisely to let residents express views on the major global crosses without first having to construct a synthetic position out of two rupee pairs.

Before February 2018 a resident who wanted EURUSD exposure on an Indian exchange had to buy EURINR and sell USDINR in the right ratio, carrying two sets of margin, two bid-ask spreads and the basis risk of two separate rupee legs. The direct EURUSD contract collapses that into one instrument with one margin and one spread. The settlement still references the rupee, because the final cash flow has to be denominated in rupees for an Indian account, but the price the trader watches and the risk being taken carry no rupee at all.

This is the concrete difference from the INR pairs: in USDINR the rupee is the thing you are exposed to; in EURUSD the rupee appears only at the very end, as the currency your INR-denominated profit or loss is booked in, after the price move in euros and dollars has already been determined.

Contract specifications

NSE and BSE list the three cross pairs with the lot sizes and tick conventions below. The figures follow the NSE currency derivatives contract specification and the SEBI 2018 product circular.

Options on all three pairs are European-style, exercisable only at expiry, and cash settled in rupees on the same reference-rate basis as the futures. Strikes are listed at intervals set by the exchange around the prevailing price, with near-the-money strikes spaced more finely than far-from-the-money ones.

The tick mechanics differ from the INR pairs because the quote currency differs. A one-tick move in EURUSD is USD 0.0001 per euro, on a lot of EUR 1,000, so the per-tick value is USD 0.10, which is then converted to rupees for the ledger. A one-tick move in USDJPY is JPY 0.01 per dollar, on a lot of USD 1,000, so the per-tick value is JPY 10, again converted to rupees. Contrast this with USDINR, where a 0.25-paise tick on a USD 1,000 lot is worth INR 2.50 directly, with no conversion step.

How a non-rupee price settles in rupees

This is the part that catches first-time cross-pair traders. The contract price has no rupee in it, yet the account is in rupees, so the exchange has to bridge the two. It does this through the reference rates that the RBI and the FBIL publish each working day.

For daily mark-to-market and for final settlement, the exchange takes the cross-pair price and combines it with the relevant RBI or FBIL reference rate to express the result in rupees. For EURUSD and GBPUSD the chain runs through the dollar-rupee reference rate; for USDJPY it runs through the dollar-rupee and dollar-yen references. The RBI reference rate for USD/INR and the FBIL benchmark rates are published around 12:30 to 1:30 PM IST, which is why the last trading day for the cross contracts ends at 12:30 PM rather than at the 5:00 PM session close. The final settlement price is locked to those published references, not to the last traded price in the afternoon.

Two consequences follow. First, no foreign currency ever moves: a EURUSD contract held to expiry does not deliver euros or dollars, it credits or debits rupees. Second, the settlement carries a basis risk, because the reference rate at midday can differ from where the contract last traded, and on a volatile day, an ECB rate decision, a US payrolls print, a Bank of Japan intervention, that gap can be material. A trader who wants to avoid the reference-rate gap squares off before the last trading day rather than carrying the position into settlement.

Margins

Cross-currency derivatives use the same SPAN-plus-exposure margin framework as the rest of the F&O segment . NSE publishes SPAN parameter files for the currency segment through the day, and Zerodha’s order window shows the requirement before you submit.

For futures, the initial margin is SPAN margin plus exposure margin , typically a low single-digit percentage of the notional contract value, which for currency is smaller than for equity F&O because exchange-rate volatility is lower than single-stock volatility. For option buyers, only the premium is payable. For option writers , SPAN plus exposure applies, and the loss on a short option is open-ended, so the margin moves with volatility. Check the exact figure on the Zerodha SPAN margin calculator before placing the order, because event days can lift the SPAN parameters intraday.

Notional value on a cross pair is computed through the rupee. A EURUSD lot of EUR 1,000 at 1.0850, with USDINR near 83, has a rupee notional of roughly EUR 1,000 x 1.0850 USD/EUR x 83 INR/USD, about INR 90,000 per lot, against which the percentage margin is applied. The thinner liquidity of the cross pairs means the bid-ask spread, not the headline margin, is often the larger real cost of entering and exiting.

Position limits and the underlying-exposure rule

The position-limit regime is the same one that governs every currency contract on the exchange and is set by RBI and SEBI jointly. A resident may run an aggregate position of up to USD 100 million equivalent across all currency pairs per exchange without producing any documentary evidence of an underlying foreign-exchange exposure. This headroom covers the cross pairs alongside the INR pairs.

Above the USD 100 million aggregate, RBI rules require the client to hold and, on the broker’s request, produce evidence of a genuine underlying exposure, such as trade invoices, foreign-currency loans or contracted foreign-currency liabilities, that the derivative position hedges. Zerodha monitors client positions against these limits and can require a client to reduce a position that breaches them. For the overwhelming majority of retail traders the USD 100 million ceiling is never approached, so the documentation rule does not bite in practice, but it is the binding regulatory backstop on large positions and it applies to EURUSD, GBPUSD and USDJPY exactly as it does to USDINR.

The cross pairs raise a subtler point on hedging eligibility. Because neither leg is the rupee, a resident with, say, a euro receivable and a dollar payable can hedge the residual EURUSD risk directly with one contract rather than two rupee legs, which is one of the reasons SEBI listed the products.

How cross pairs differ from the INR pairs

The two families share the segment, the brokerage, the exemption from STT and the rupee settlement, but the underlying risk is different.

The single largest practical difference is liquidity. USDINR carries the bulk of Indian currency-derivative turnover, EURINR, GBPINR and JPYINR are lighter, and the cross pairs are lighter still. A trader sizing a position in EURUSD or USDJPY has to account for a wider spread and shallower depth than USDINR offers, particularly in the far-month contracts and in the options, where open interest can be sparse away from the at-the-money strike.

Brokerage, charges and tax

The charge structure matches the rest of the currency segment, covered in detail on the Zerodha currency segment page.

Currency derivatives are exempt from securities transaction tax under the Finance Act 2004, because they are not securities as defined under the Securities Contracts (Regulation) Act 1956, and they carry no commodity transaction tax either. Gains and losses on the cross pairs are treated as non-speculative business income under Section 43(5) of the Income Tax Act 1961, the same treatment as the rest of F&O : taxed at slab rates, losses carried forward for eight years against business income, filed on ITR-3, with turnover for audit computed as the absolute sum of profits and losses. For any sizeable activity, confirm the tax position with a chartered accountant, since the audit threshold and reporting depend on total turnover across all segments.

Common operational considerations

The midday last-trading-day cutoff is the most frequent surprise. A cross-pair contract held into expiry stops trading at 12:30 PM IST, not at the 5:00 PM session close, because the reference rates that fix the final settlement are published around midday. A trader expecting to manage the position into the afternoon finds it already locked to the reference rate.

Liquidity is the second. Adding a EURUSD or USDJPY contract to the Kite watchlist and seeing a thin order book is normal; the depth concentrates in the near-month, and the options away from the at-the-money strike can show no quotes at all. Use limit orders, check open interest before sizing, and avoid market orders in the far-month, where a single market order can sweep through several ticks.

The third is segment activation. The cross pairs sit inside the same currency derivatives segment as USDINR, so a client who has not activated the segment sees an “instrument not available” error when searching for EURUSD. Activate the currency segment in Console first, the same step described for trading USDINR futures .

See also

• Zerodha
• Currency derivatives on Zerodha
• Zerodha currency segment timings
• How to trade USDINR futures on Zerodha
• Weekly currency options on Zerodha
• National Stock Exchange
• Bombay Stock Exchange
• SEBI
• Reserve Bank of India
• Financial Benchmarks India (FBIL)
• RBI reference rate
• Kite by Zerodha
• Zerodha Console
• Zerodha F&O segment
• SPAN margin on Zerodha
• Exposure margin on Zerodha
• Naked option selling margin on Zerodha
• Zerodha margin calculator
• Foreign portfolio investor
• Foreign Exchange Management Act
• Futures and options
• F&O taxation in India
• Zerodha F&O charges
• Securities transaction tax
• How to activate F&O on Zerodha
• How to calculate SPAN margin on Zerodha
• F&O trading risks
• Trading account

External references

• SEBI: Circulars page (currency derivatives product circulars)
• NSE: Currency derivatives segment
• RBI: Reference rate archive
• FBIL: Financial Benchmarks India
• Zerodha support: Currency derivatives

References

1. SEBI circular SEBI/HO/MRD/DP/CIR/P/2018/05 dated 15 January 2018, Introduction of cross-currency futures and exchange-traded options on EUR-USD, GBP-USD and USD-JPY currency pairs.
2. NSE Currency Derivatives Segment, Cross-currency contract specifications (EURUSD, GBPUSD, USDJPY).
3. RBI A.P. (DIR Series) circulars on exchange-traded currency derivatives and resident position limits.
4. Finance Act 2004, securities transaction tax provisions; currency derivatives exemption.
5. Income Tax Act 1961, Section 43(5), non-speculative treatment of derivative income.
6. FBIL, USD/INR and benchmark reference-rate methodology, fbil.org.in.