Aspects Leading to Increased Investor Focus on Currency Derivatives

Abstract

This paper helps determine the significance of factors like hedging, arbitrage, portfolio diversification, market volatility, and speculation that contribute to retail investors' interest in currency derivatives. It also examines the major reasons that keep retail investors on the back foot from investing in currency derivatives if they are not willing to invest in this segment. Special emphasis is given to currency derivative trading.

The interest of investors in currency derivatives has been growing significantly in recent years. Several factors drive this trend, reflecting both global economic dynamics and individual investor strategies. Key among these factors is the heightened volatility in foreign exchange markets, which creates opportunities for speculation and hedging. Additionally, advancements in financial technology have made access to currency derivatives more seamless and efficient, attracting a broader base of investors. Macroeconomic factors, such as interest rate differentials between countries, also play a crucial role by influencing currency values and creating arbitrage opportunities. Furthermore, institutional investors are increasingly utilizing currency derivatives for risk management purposes, recognizing their potential to mitigate foreign exchange risk in international portfolios. Regulatory changes and the evolving landscape of global trade also contribute to the growing appeal of these financial instruments. Overall, the interplay of market volatility, technological innovation, macro-economic conditions, and institutional investment strategies forms the core of the factors driving the increasing interest of investors in currency derivatives.