The Reserve Bank of India (RBI) issued a notification on January 5, 2024, indicating that as of April 5, 2024, currency derivatives trading will be restricted to hedging purposes exclusively. This directive underscores the expectation for traders to employ these instruments primarily for mitigating forex risk rather than engaging in speculative trading.
Additionally, there will be constraints on position sizes. Previously, traders were permitted to take positions in currency derivatives of up to $100 million without any underlying exposure. However, it seems that this allowance is now either being abolished or substantially curtailed.
Here is a detailed take on this from Deepak Shenoy of Capitalmind PMS - https://x.com/deepakshenoy/status/1775493837072343050?s=20
What do you think of this move?
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This will take out traders from the market. So this will considerably reduce liquidity. Hedgers will therefore find it tough to get good prices to enter and exit.
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Why RBI can’t use simple english to explain 
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Traders are the one who risk their own money to provide liquidity in the market and thereby helping the market reach the equilibrium at any given time. For deploying own money, traders’ get a profit if he/she can trade wisely.
I think there is a much more bigger picture which will unveil in the next 2-3 years. USDINR is slipping away and I don’t want to say anything more than that given the air around free speech.
Vague statements and policy instability is something that every investor is concerned with be it a FII or DII.
But, there is something more than what meets the eye.
Earlier USDINR was best currency pair trading for option selling. But now we can’t do this anymore. It’s just needed 2k for 1 lot selling. SEBI says we care for retail trader blah blah but in actual reality its not.
-WANT TO INCREASE TRADING NSE TIMING
-DECREASING LOT SIZE FOR OPTION TRADING
-EVERYDAY OPTION EXPIRY GAME
small traders were shifted to USDINR trading (LESS VOLATILITY) and due to small capital but this has gone too. Now they have no other choice except NSE options and again they will come here to lose the money.
It’s really true, every underlying if we don’t have it should be stopped ! like if we don’t have shares of Reliance, why we should be allowed to hedge it in future ? if we are not oil dealers, why we should be allowed to trade in Crude ?
Everything such should be stopped like that way and in most of transactions, government’s income is more than trader or broker by way of taxes and without any liability to tax payer !