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Rupee swings hand arbitrage advantage to day traders |
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MUMBAI: With the rupee turning volatile against the dollar, day traders have tapped an arbitrage opportunity within a short span between the exchange traded futures and domestic over-the-counter forward markets.
The intensity on Tuesday was about 5-10 paise compared with zero to three paise a week or two ago in the 1-month contract category. Traders were seen buying the January contract in the dollar-rupee pair at about 63.82/$ while selling the similar maturity forward contract at 63.87-63.88. The gap, or spread, was on the higher end in other pairs like euro-rupee or pound-rupee or yen-rupee.
"Traders have initiated fresh long positions for the last two weeks as the rupee has turned volatile," said Sajal Gupta - head (forex and interest rate), Edelweiss Financial Services.
"Earlier, they were enjoying premium of a stable exchange rate. Intra-day sharp volatility led to some arbitrage opportunities." The average daily futures volume has nearly doubled to 11,300 crore compared with 6,050 crore in the first fortnight of the month, show data from NSE.
Between December 15 and 23, the rupee has swung from 62.46 to 63.89 per dollar, a movement as high as 2.29%, or 143 paise.
"After being ranged and quiet for nearly five months, dollar/rupee sprang to life since the first week of December," said Anindya Banerjee, currency analyst at Kotak Securities. "Since then, turnover or participation has increased in all the three pillars of financial markets, viz., speculators, arbitrageurs and hedgers have become active."
Over the past one week, the offshore non-deliverable forward market has been tepid as most traders have gone on leave ahead of year-end festivities globally.
The spreads, or gaps, with non-deliverable forward ( NDF) from two domestic markets have shrunk to near zero from eight or 10 paise discount earlier. This, too, has fuelled arbitrages between domestic futures and forwards. Futures, forwards and NDFs all are the rupee derivatives.
Such large arbitrage opportunities have been lapped up by traders, which has helped in pumping up the volume on the exchange, dealers said. "We have seen arbitrage between futures and forward markets whenever there is demand-supply mismatch and sudden exchange rate volatility," said Abhishek Goenka, founder & CEO, India Forex Advisors.
Arbitrage opportunities wane as and when the exchange rate turns to a particular trending, be it down or up instead of sharp swings. Traders' rush to tap such opportunities is also being blamed.
"That too has not lasted long, as players have captured the difference and consequently, the contracts on OTC and exchange are now almost back at parity," Banerjee said. On Wednesday, the local unit trended down against the greenback to close the day's trading at 63.52 per dollar, weakened 0.38% from a day earlier.
Oil companies were seen buying dollars in the domestic forwards to meet their month-end demand.
Source : economictimes.indiatimes.com
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