Base price

Before the market opens, every contract needs a number to be measured against. That number is the base price.

It does two jobs:

1. It is the reference price for the start of the day — what the screen shows as the prior level a new day's trading moves away from.
2. It is the anchor for the operating range — the percentage band outside which orders are rejected.

Where it comes from depends on the contract's age. On the first day a contract is introduced, there is no history, so the exchange uses the theoretical futures price computed from the spot rate and the interest differential. On every subsequent day it is the daily settlement price of the previous day, as computed by the clearing corporation.

So the base price is not a fresh calculation each morning. It is yesterday's settlement, handed forward.

The daily settlement price that becomes tomorrow's base price is itself the volume weighted average futures price of the last half hour of trading across exchanges — and if no such close price is available, the theoretical futures price instead. The chain is unbroken: theoretical price seeds the contract, settlement prices carry it forward, and a theoretical price steps in whenever trading is too thin to produce one.

The operating range is where the base price earns its keep. Currency futures have no daily price bands in the ordinary sense. What they have instead is a band designed to stop fat-finger orders:

• ±3% of the base price for contracts with tenure up to 6 months
• ±5% of the base price for contracts with tenure greater than 6 months

and the band is relaxed in increments of 1% as and when a market-wide trend is observed. Longer contracts get the wider band because they genuinely move more.

Currency options work differently: their operating range is computed from the delta of the contract using the previous close of the underlying and volatility, subject to a minimum range, recomputed daily and applicable from the next trading day.

Day 1 of a contract : Base price = Theoretical futures price
Every day after     : Base price = Previous day's daily settlement price

Daily settlement price = VWAP of the last 30 minutes across exchanges
                       , or the theoretical futures price if unavailable

Operating range = Base price × (1 ± 0.03)   tenure ≤ 6 months
                = Base price × (1 ± 0.05)   tenure > 6 months

All resulting prices are rounded to the tick of Rs 0.0025 (0.25 paise).

It is March 2024, and two USDINR futures contracts are live.

The April contract, base price Rs 83.00. Tenure is under six months, so the band is ±3%:

83.00 × 0.03 = 2.49
Lower = 83.00 − 2.49 = 80.51
Upper = 83.00 + 2.49 = 85.49

Operating range Rs 80.51 – 85.49. An order keyed at 86.00 is rejected before it reaches the book.

The October contract, base price Rs 84.50. Tenure exceeds six months, so the band is ±5%:

84.50 × 0.05 = 4.225
Lower = 84.50 − 4.225 = 80.275
Upper = 84.50 + 4.225 = 88.725

Operating range Rs 80.275 – 88.725 — a band nearly twice as wide in rupee terms, from a base price only Rs 1.50 higher. The tenure, not the price, did that.

Next day. Suppose the April contract's last half hour produces a volume weighted average of 83.2500. That becomes the daily settlement price, and therefore tomorrow's base price:

83.2500 × 0.03 = 2.4975
New operating range = 80.7525 to 85.7475

Both limits are exact multiples of the 0.0025 tick. The band has walked up by 0.2475 at each end simply because the settlement moved 0.25.

And if the market trends. With a market-wide trend observed, the band is relaxed a percentage point at a time — 3% becomes 4%, and on a base of 83.2500 the range widens to 79.92 – 86.58.

In contract-value terms, the April band spans Rs 80.51 to Rs 85.49 on a lot of USD 1,000, or Rs 80,510 to Rs 85,490 of contract value — which is the size of erroneous order the check exists to stop.

The base price appears twice in the syllabus, and you need both. Chapter 3 (Exchange Traded Currency Futures) introduces it in the contract terminology alongside lot size, tick size, price band, mark to market and settlement prices, and it is listed as a line item in the contract specification tables for both rupee and cross-currency futures. Chapter 6 (Trading Mechanism), section 6.5, then uses it to build the operating ranges, and carries the worked March 2024 example of the April and October contracts above verbatim.

Expect a direct question on what the base price is on the first day of a contract — the answer is the theoretical futures price, not the spot rate and not the previous close of another contract — and a computation asking for the operating range given a base price and a tenure. Reading "6 months" correctly is the whole question.

• Day one is the exception. Base price equals the theoretical futures price only on the day of introduction. Every other day it is the previous daily settlement price.
• Base price is not the spot rate, and not the opening price. It is a settlement price carried forward, which is why a contract can open away from it.
• Currency futures have no daily price bands. The operating range is an erroneous-order check, not a circuit filter — and the workbook says so explicitly. Calling it a price band in a definitional question loses the mark.
• ±3% and ±5% split at six months of tenure, not at six months from listing of the near month. The October contract in March gets 5%; the April contract gets 3%.
• Options do not use this rule. Their range is delta-based, computed from the previous close of the underlying and volatility, subject to a minimum.
• The band is relaxed in 1% increments on a market-wide trend — not doubled, and not removed.