Buying INR on Interactive Brokers

I have traded stocks, options and futures for quite some time but never traded currency. I trade through Interactive Brokers and wanted to buy/sell Indian rupee (both in futures market as well as Forex swaps)....so, the rupee is currently trading at 60 rupees to a dollar and the position I want to take is that it trades at less than that. The main question I have is how do I trade this on IB platform? The MIR contract gives me two options but both don't look right. And how does one, on IB execute it in the forex market.

 

No one trades INR here my guess, maybe ask IB?

 

Note sure what you're seeing (Just looking at my Bloomberg at the moment, not IB).

But MIR M4 (June 14 Mir contract) should be ~168.40.
Before trading any new product, look up the specs (in this case here for example: http://www.cmegroup.com/trading/fx/e-micros/e-micro-indian-rupee_contract_specifications.html)

MIR futures are quoted in US$ cents per 100 INR so at present ~$1.6840 for 100 INR. 'Converting' this back into the standard INR rate which is quoted in INR per 1USD, you would get a rate of 59.38 (100 / 1.6840).

If you want to take a position that INR will strengthen (i.e. trade 'below 60' as per your original post), you could go long (buy) a MIR future.

But again, I strongly suggest you educate yourself on the products you're trading as well as their relationship to spot markets before taking any position.

 

Thanks H2O. Did some more digging on MIR. Here’s a question. The spot was Rs. 59.3 and one thinks it is headed to Rs. 55 for every dollar in 12 months. The MIR June contract trades at 168….very close to the current spot at Rs. 59.3 (divide 100 by 1.6855). The May 2015 contract is quoted at 159.05 – so it’s saying that you would need 62.87 rupees to buy one dollar.

This makes me think that one should be buying MIR May contract if my price target is 55, right? Because for it to go to 55 rupees, MIR needs to be 181?

 

Simplified answer - if you believe INR will strengthen, yes. (Another way to think about it is: Now I get $1.68 for every 100 Rupees, If I think INR will strengthen, I should therefore in the future receive more than $1.68 for my 100 Rupees, i.e. $1.81 if spot moves to ~Rs. 55)

Keep in mind that if you are holding INR, you will earn a higher interest rate than if you are holding USD. Futures contracts take this into account (as well as some other factors). This explains the difference between the 'spot' and futures or forward contracts. (This is why the June contract trades closer to spot than the May 15 contract). Assume you buy the May 15 contract now at 159 (I didn't check pricing again, just going off your msg above), if spot doesn't move, this contract will be trading very close to 168 in early May 15 (similar to the June 14 contract now). This 'gain' is the way you get compensated for the interest rate differential.

Or trying to explain it from another point of view: Assume you have Rs. 62.87 now, you can either convert that into $1.06 in the spot market (62.87 / 59.3) and receive USD interest rates on the $1.06, or you can keep your INR and receive (the higher) INR interest rates on this and commit to converting it into $1.00 in May 2015. In a 'perfect' market there should not be any differential.

You have to keep in mind though that markets are seldom perfect, but you will rarely be able to benefit from these imperfections

Hope this helps

 

Thanks H2O. This is very helpful!