Community Forex Questions
How the exchange delivery settlement price works in equity futures vs. currency futures?
The Exchange Delivery Settlement Price (EDSP) serves as the final reference price for settling futures contracts at expiry, but its determination differs between equity futures and currency futures.
In equity futures, the EDSP is typically based on the weighted average price (WAP) of the underlying index or stock during a specified closing period (e.g., the last 30 minutes of trading). For example, the EDSP for Nifty 50 futures is derived from the index’s average value during the expiry day’s closing session. This method minimises manipulation and ensures a fair settlement aligned with actual market conditions.
In contrast, currency futures (e.g., USD/INR or EUR/USD) often use a fixed benchmark rate, such as the central bank’s reference rate or an interbank forex rate (like RBI’s FBIL rate for INR pairs). Since forex markets operate 24/5, the EDSP is usually based on a snapshot at a specific cutoff time rather than an intraday average.
While equity futures EDSP relies on market-driven price discovery, currency futures depend on official exchange rates, reducing volatility risks. Additionally, equity futures are mostly cash-settled, whereas currency futures may involve physical delivery if held to expiry, depending on contract terms. Both mechanisms ensure fair settlement but reflect the distinct liquidity and regulatory dynamics of their respective markets.
In equity futures, the EDSP is typically based on the weighted average price (WAP) of the underlying index or stock during a specified closing period (e.g., the last 30 minutes of trading). For example, the EDSP for Nifty 50 futures is derived from the index’s average value during the expiry day’s closing session. This method minimises manipulation and ensures a fair settlement aligned with actual market conditions.
In contrast, currency futures (e.g., USD/INR or EUR/USD) often use a fixed benchmark rate, such as the central bank’s reference rate or an interbank forex rate (like RBI’s FBIL rate for INR pairs). Since forex markets operate 24/5, the EDSP is usually based on a snapshot at a specific cutoff time rather than an intraday average.
While equity futures EDSP relies on market-driven price discovery, currency futures depend on official exchange rates, reducing volatility risks. Additionally, equity futures are mostly cash-settled, whereas currency futures may involve physical delivery if held to expiry, depending on contract terms. Both mechanisms ensure fair settlement but reflect the distinct liquidity and regulatory dynamics of their respective markets.
May 08, 2025 02:22