The Dubai Gold and Commodity Exchange has announced three new contracts, including India Gold Quanto Futures and Indian Rupee Quanto Futures, aimed at enabling investors gain exposure to Indian gold and rupee market.
A quanto is a type of derivative in which the underlying is denominated in one currency, but the instrument itself is settled in another currency at some fixed rate.
The DGCX yesterday said it will upsize its existing Plastics Futures and that the new contracts, which also includes Mini Dubai Polypropylene Futures, will go live tomorrow.
The launch of the quanto products is aimed at enabling investors to gain exposure to the Indian gold and rupee market without being exposed to movements in the USD-INR exchange rate.
"Quanto products are very unique not just in this market but worldwide. Our Indian Quanto contracts will offer great benefits to DGCX market participants, primarily by offering them immunity from exchange rate fluctuations apart from providing significant arbitrage opportunities," said Gaurang Desai, Interim CEO of DGCX.
DGCX India Gold Quanto Futures contract will provide price discovery and gold trading opportunities for offshore traders to access Indian markets, one of the biggest gold consuming countries in the world.
The new contract will trade before and after the closure of the Indian markets, which offers traders increased trading opportunities.
The contract will be cash settled, denominated in US dollars, and sized at 1 index point.
DGCX is already the largest offshore Indian Rupee futures market with the average daily value of trading exceeding USD 1.3 billion in 2015.
The Indian Rupee Quanto Futures contract will enable traders to mimic Indian Rupee returns on the USD/INR contract in US Dollars, which helps amplify their potential returns.
"While DGCX's current Indian Rupee product suite is essentially used by arbitrageurs and hedgers, the new DGCX INR Quanto contract is designed for traders who take a directional call on the Indian Rupee.
"The contract will supplement the Exchange's existing Indian suite of products by providing traders with an outright quote on the USD/INR foreign exchange rate and inter- arbitrage opportunities," Gaurang said.
The DGCX INR Quanto contract will be cash settled with a multiplier of 100 to the value of USD 1 in Indian Rupee terms. The value of the Quanto contract is likely to stay between USD 6,000 and USD 7,000 - making it twice the size of DGCX's mini Indian Rupee contract and five times smaller than the main Indian Rupee contract.
DGCX is the region's first derivatives exchange and the only one allowing participants to clear and settle transactions within the Gulf region.
