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Unit study guide · NISM Series I

Trading Mechanism in Exchange Traded Currency Derivatives

13 questions in this unit

What this unit covers

Key ideas

From the practice bank · 1

On a normal NSE trading day, the regular trading session for currency futures and options on INR pairs is which interval in IST? Exclude holidays, special sessions and contract-specific expiry cutoffs.

This matches the ordinary INR-pair currency derivatives session shown by NSE. NSE’s inspected market-timings page gives the ordinary INR-pair currency derivatives session as 09:00 to 17:00 IST. The question expressly excludes holidays, special sessions and earlier cutoffs that can apply to an expiring contract. The correct interval is therefore 9:00 a.m. to 5:00 p.m. A separate segment or instrument must be checked on its own terms. Remember: Use the exchange’s timetable for the specified segment and distinguish ordinary hours from expiry-day exceptions.

Hint Common mistake: Applying equity-market trading hours to currency derivatives.

I-025

From the practice bank · 2

Under NSE’s published USD-INR futures specification, what is the smallest single-order quantity that attracts the quantity freeze?

The specification says 10,001 or greater, so this is the smallest covered order. The specification identifies orders of 10,001 contracts or more for the quantity freeze. Therefore 10,001 is the first quantity at the boundary. An order of 10,000 is below that particular threshold, though other risk checks still apply. Remember: Read a quantity-freeze threshold as a per-order boundary, not as a position limit.

Hint Common mistake: Rounding 10,001 down to 10,000 or confusing contracts with dollars.

I-026

From the practice bank · 3

For the same USD-INR futures contract, sell order X at 88.30 arrives before sell order Y at 88.28. Both are available when a market buy order for one contract arrives. Which order is matched first under price-time priority?

Y offers the buyer the lower price, so it has price priority. A buyer obtains the better price from the lower-priced sell order. Here 88.28 is better than 88.30. Y therefore ranks before X despite arriving later. X’s earlier timestamp would matter against another sell order priced at 88.30. Remember: Compare prices first and timestamps only when prices are equal.

Hint Common mistake: Applying first-come-first-served across different price levels.

I-027

From the practice bank · 4

An Immediate or Cancel limit order seeks to buy 8 currency-futures contracts at 88.25 or better. When it reaches the book, only 5 contracts are available at acceptable prices. What happens to the order?

The available 5 contracts execute and the unfilled 3 are immediately cancelled. Only 5 contracts satisfy the buy limit at the moment of execution, so that quantity can trade. The unfilled balance is 8 − 5 = 3. The IOC condition cancels that balance immediately rather than leaving it to wait. Remember: Apply the order’s time instruction and price limit together.

Hint Common mistake: Confusing IOC with all-or-nothing execution or assuming it turns a limit order into an unlimited market order.

I-046

From the practice bank · 5

An accepted sell stop-limit order in USD-INR futures has trigger 88.40 and limit 88.30. The next trade is at 88.20 and the highest available buy order is 88.18. With no better buy order arriving, what happens?

Activation occurs, but the stated buy orders cannot meet the sell limit. The last trade at 88.20 is below the sell trigger of 88.40, so the order activates even though there was no trade exactly at the trigger. After activation, the sell limit permits execution only at 88.30 or a higher price. The highest bid of 88.18 is too low, so the order cannot fill on the stated book. Remember: Keep the activation test and the execution-price test separate for a stop-limit order.

Hint Common mistake: Assuming that triggering guarantees a fill or that a skipped trigger never activates.

I-064

From the practice bank · 6

A market buy order for 10 USD-INR futures contracts is fully matched against 4 sell contracts at 88.10 and then 6 at 88.12. All contracts have the same size. What is the volume-weighted average execution price?

This answer weights the two prices by four and six contracts, respectively. Weight each fill by its contract count: total price-weighted quantity = 4 × 88.10 + 6 × 88.12 = 881.12. Divide by 10 filled contracts: average price = 881.12 ÷ 10 = 88.112 INR per USD. The equal cancels out in the weighting. This is an average, not the price of an individual fill. It lies between 88.10 and 88.12 and is closer to 88.12 because more contracts traded there. Remember: For execution averages, weight prices by filled quantity rather than by the number of price levels.

Hint Common mistake: Using the midpoint, best price or last fill instead of the weighted average.

I-065

From the practice bank · 7

A broker’s risk system shows ₹24,000 of eligible collateral and a ₹25,000 requirement after a proposed currency-futures order. The order is within the exchange price filter. No additional collateral or offsetting position is available. Which assessment is correct?

The specified collateral is below the requirement even though the order price is valid. The collateral shortfall is ₹25,000 − ₹24,000 = ₹1,000 under the amounts supplied by the risk system. Being inside the price filter does not supply that ₹1,000. Changing the order type does not remove the stated collateral requirement. Remember: Evaluate price validity and risk funding separately before considering an order acceptable.

Hint Common mistake: Assuming exchange price acceptance implies adequate funding.

I-066

From the practice bank · 8

A valid DAY order to buy 20 currency futures contracts is accepted. Twelve contracts trade and eight remain unfilled when the trading day ends. What happens to this order?

DAY validity governs the pending order. It does not undo trades already matched. Twelve contracts have already become completed trades. The pending balance is 20 − 12 = 8 contracts. DAY validity ends with the trading day, so the unmatched balance is cancelled. Cancellation of that balance does not reverse the twelve trades or determine when their resulting position must later be closed. Remember: Separate an expiring order from an existing trade or position.

Hint Common mistake: Assuming that of a DAY order also cancels its filled portion.

I-089

From the practice bank · 9

A trader buys 12 USD-INR futures contracts at 88.20, each for USD 1,000. Total charges for entry and exit together are ₹240. At what closing price is the cumulative net result zero? Ignore all other costs and interest.

The gross profit required is ₹240 on USD 12,000. The required price rise is 240 ÷ 12,000 = 0.02. Total USD quantity = 12 × 1,000 = USD 12,000. Net cumulative result = (closing price − 88.20) × 12,000 − 240. Set the result equal to zero. Required price change = 240 ÷ 12,000 = ₹0.02 per USD. closing price = 88.20 + 0.02 = 88.22. The total ₹240 already includes both entry and exit and must be deducted only once. Remember: Divide total round-trip cost by total underlying quantity to find the extra break-even price move.

Hint Common mistake: Doubling a fee that was already stated for both legs or applying the total fee to only one contract.

I-090

From the practice bank · 10

A broker’s order report shows a currency futures order as accepted and open, with an order ID, executed quantity 0 and no trade confirmation. What can the client conclude from this report?

This answer is consistent with all three supplied fields: accepted, open and zero executed quantity. The report explicitly says that the order is accepted and remains open. It also reports zero executed quantity. Therefore it does not establish a futures position from this order. An order ID identifies the instruction. It is not, by itself, confirmation that any contract has been matched. Remember: Use executed quantity and trade confirmation to distinguish an order from a trade.

Hint Common mistake: Treating acknowledgement of an instruction as confirmation of execution.

I-114

From the practice bank · 11

An importer budgets a currency futures purchase at 88.20. It buys 25 contracts of USD 1,000 each at 88.24 and incurs ₹120 total charges for this purchase. What is the combined cost of the adverse execution-price difference and these charges?

This answer includes both the ₹1,000 adverse execution-price difference and ₹120 charges. The adverse price difference is 88.24 − 88.20 = ₹0.04 per USD. For USD 25,000, the price shortfall is ₹0.04 × 25,000 = ₹1,000. The benchmark excluded charges, so add the ₹120 actual charges. Additional outlay is ₹1,120. This is a comparison measure, not the full notional cash payment required to enter futures. Remember: State the benchmark, multiply the adverse price difference by quantity and include the relevant charges once.

Hint Common mistake: Confusing an execution-cost comparison with the futures notional or subtracting a cost from another cost.

I-115

From the practice bank · 12

An illustrative currency order book executes at the resting order’s price. It shows 10 contracts offered at 89.95 and 15 at 90.00. A valid DAY order arrives to buy 20 contracts with a limit of 89.97. With no other orders or changes, what happens immediately?

Only the first 10 offers are within the limit. The DAY balance remains at its limit price. The 10 contracts offered at 89.95 meet the maximum purchase price of 89.97. They execute at the stated resting-order price of 89.95. The next ask of 90.00 is above the limit, so it cannot fill the remaining quantity. Because the order is DAY rather than IOC, the unmatched 10 contracts remain in the book at 89.97 under the stated unchanged conditions. Remember: A marketable limit order can get a better price while leaving a balance unfilled.

Hint Common mistake: Assuming the limit is a compulsory execution price or that every partially filled order cancels its remainder.

I-138

From the practice bank · 13

A client requests cancellation of an unfilled eight-contract currency order. Exchange records show that three contracts execute before the cancellation is processed. The acknowledgement then cancels the remaining five. There is no trade annulment. What is the final status?

This follows both the execution record and the acknowledged cancelled balance. The exchange sequence shows a valid execution of three contracts first. Those are completed trades under the facts given. Five contracts remain when cancellation is processed, and the acknowledgement cancels exactly those five. Reconciliation is 8 ordered = 3 traded + 5 cancelled. Sending the request earlier does not reverse the recorded execution. Remember: Reconcile executed and cancelled quantities using acknowledgements, not only the time a request was sent.

Hint Common mistake: Assuming a cancellation request guarantees that no trade can occur before the request is processed.

I-139

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