In the recent amendment in the Finance Bill 2023, the government has increased the STT on securities in the derivatives market. This wasn’t a surprise move considering the soaring volume in this space which posed it as a good opportunity to milk it more for tax revenues. Nonetheless, we all have to comply with it and nothing can be done here.
A couple of days back, the NSE also decided to slash Nifty Bank lot size by 40% to 15, which also concerned many traders on account of increased brokerage for higher lots (if they are not trading with a discount broker).
Here I have tried to explore a much-underpenetrated segment of the markets that traders should start taking a serious look at if they want to save up on trading costs – Currency options trading. Most of you might not be knowing that there is absolutely no STT being charged on forex trading in India, at least currently. I thought of pointing it out first, as increasing STT has become a major concern for traders, especially after the recent hike. While there is a revised STT of 0.0625% (earlier, 0.05%) being charged on equity/index options premium (on the sell side) there is no such charge in options selling in the forex market.
But that’s not all. Let’s look at other costs as well. The NSE also charges its exchange transaction charge which is 0.053% for equity options (on premium) but 0.035% for currency options (on premium), up to 31 March 2023. From 1 April 2023, the NSE has decided to cut its transaction charges in the equity F&O segment and it has now been revised to 0.05% for equity options, still noticeably higher than currency options.
While the GST of 18% is the same in both equity and currency options, but still you end up paying less GST in the latter. When GST is calculated, exchange transaction charges are also taken into consideration. Because this cost is lower in the currency options (as shown above) it further reduces your GST bill.
In case you are already thinking of taking a serious look at currency trading, there’s another cost advantage. You also pay stamp duty on the options trading, which is 0.003% in the equity/index options (on the buy side) and 0.0001% in currency options (on the buy side). In simple terms, it’s INR 300/crore in equity options and INR 10/crore in currency options, a huge difference.
Trading costs should never be the sole determinant to start trading a different asset class, however, there’s no harm in exploring new avenues, especially when the margin requirements are as low as INR 1,800 per lot.
The only drawback is, currently USD/INR is the sole pair that has sufficient liquidity while the other 6 pairs (including cross-currency pairs) have poor volume, making them difficult to trade, especially their options.
Read More: 3 Simple Ways to Improve Your Options Trading
