Non deliverable forwards let banks hedge currencies that cannot be freely delivered. How NDFs trade and settle between banks, what each ticket costs, and how IDBX trades them.
A non deliverable forward, or NDF, is a forward contract on a currency that cannot be freely delivered offshore. Instead of exchanging the two currencies, the parties settle the difference in cash, usually in US dollars, between the rate they agreed and an official fixing published shortly before settlement.
NDFs exist because some currencies are restricted. A bank or investor exposed to one of them can still hedge, without either party needing access to the onshore market.
The trade. Two parties agree a notional amount, a forward rate and a fixing date.
The fixing. On the fixing date, the reference rate is published by the source named in the contract.
The settlement. A few days later, one party pays the other the difference between the agreed rate and the fixing on the notional, in the settlement currency. The restricted currency never changes hands.
Between banks, NDFs trade through interdealer brokers, by voice and on electronic platforms. Brokerage is usually charged per million of notional, and NDF rates sit well above those for deliverable FX swaps. The opening defaults on The Meter reflect that, at 2.75 per million for NDFs against 0.50 for FX swaps, and every figure there is yours to change.
Subscription access. A fixed monthly subscription per active trader, with no brokerage on individual tickets, so hedging more often does not cost more. What a subscription trading platform is.
Rules based matching. Orders match on the venue’s published rules.
Netting in the settlement currency. An NDF produces a single cash obligation in its settlement currency on its settlement date. IDBX classifies it like any other obligation, by rail, currency and date, and nets it only with obligations in that same settlement set. Execution stage netting, explained.
AIDANN on every desk. AIDANN, the IDBX trade assistant, explains positions and net obligations in plain language. It holds no permission to trade.
NDF liquidity is concentrated in a small number of dealers and currencies, and the most active currencies trade heavily in Asian hours. A new venue has to earn that flow rather than assume it. A subscription is also not cheaper for every desk, and a desk that hedges rarely may pay less per ticket.
What is an NDF?
A forward on a restricted currency, settled in cash in another currency for the difference between the agreed rate and a published fixing.
Why is it called non deliverable?
Because the restricted currency is never delivered. Only the difference is paid, usually in US dollars.
What determines the settlement amount?
The notional, the agreed forward rate and the official fixing on the fixing date.
How does IDBX charge for NDFs?
A fixed subscription per active trader, with no per ticket brokerage.
Who can trade?
Banks and dealers, onboarded institution by institution. Request onboarding.