Foreign exchange market is a financial market where foreign currencies traded (brought and sold) frequently by commercial banks, foreign exchange brokers, multi-national corporations or individuals through a huge electronic network. Not only few currencies but Foreign exchange market traded, exchanged and converted large number of foreign currencies. Currency prices are usually influenced by a number of factors, some of which could be interest rates, inflation, political and economic conditions of the country.

Alongside, Due to involvement of large numbers of foreign currencies high-level of volatility created in the Foreign exchange market which cause situation of emergence in currency futures market in India. National Stock Exchange (NSE), Bombay Stock Exchange (BSE), MCX Stock Exchange (MCX-SX) and United Stock Exchange (USE) are the major currency exchanges in India through which banking institutions, importers and exporters can trade in currency derivatives. Therefore, this allows them the chances for hedging against risk of currency volatility which is especially valuable for import and export businesses.

The Forex market in India can be divided into two categories:

• Over-the-Counter (OTC) Market where spot, forwards and swaps are traded. An OTC market does not have any centralized exchange and operates through a network of intermediaries for trading derivatives
• Exchange traded currency market where only futures and options are traded. The introduction of exchange traded currency derivatives in India made it possible for individuals and retail investors to trade in the Indian Forex Market.

Currently, Forex trading is allowed only four major currency pairs in India. There are certain specifications within which trading can be carried out and any of these currency pairs can be traded only in keeping with minimum lot size. Alongside, there is usually a twelve month contract for the purpose with a pre-specified maturity date.

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