To a large extent, the settlement cycle for currency futures is the same as equity derivatives. They are similar in the sense that both equity derivatives and currency derivatives are cash settled. Unlike commodity derivatives, there is no physical settlement in currency futures. But in equity derivatives, the futures can trade till 3.30 on the settlement date. In case of currency futures trading is allowed only up to 12.30 pm on T-2 days (2 days prior to the settlement). The actual settlement on the last day will happen based on the RBI reference rate on that date. Let us now focus on the margining aspects of currency trading?

At the most basic level, there is a SPAN margin (based on the concept of value-at-risk VAR) and then there is the exposure margin. The combination of these two items will give you the initial margins. The overall margin requirement (SPAN + Exposure) is about 2.5% of the value of the contract for overnight trades and about 1.25% for intraday trades. That implies a 40 times leverage for overnight trades and 80 times for intraday trades. This is the lowest margin among other derivative products trading in India. This is because currencies normally stick to a much narrower range compared to equities.