At NSE, currency futures did $1.8 billion yesterday. With this, India is starting to look like the first country where the turnover of the currency futures market is big when compared with the currency forward market.
Turnover is, of course, not liquidity. Liquidity is about the transactions cost faced when transacting. Liquidity comparisons between the OTC market and the futures need to take into account the fact that the OTC market trades bigger contracts. So, let's see what impact cost is visible in the information present on the web, pertaining to closing time (5 PM) on the 22nd. The quantities available at the best five prices are visible on the web. There is surely more available beyond the top five in the book, but you probably don't want to trade at those adverse prices.
Let's focus on 1000 contracts, or $1 million. Based on conversations, I get the sense that the forward market would have impact cost of 0.01% to 0.02% for this transaction size. The graph shows that the NSE contract had smaller numbers than this for both buying and selling.
The futures market seems to be able to serve upto $6 million to a buyer and $2 million to a seller, while suffering reasonable values of impact cost, within the top five prices.
This is admittedly one data point. Late in the day, I noticed a big number for turnover and wondered what was happening to liquidity, so I looked at the `market by price' display visible on the web. But for a currency futures market to beat a currency forward market on liquidity is unusual, even if it is for one data point.
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