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NISM Series I · Unit 6 of 10 · about 10% of the paper

Trading mechanism: NISM Series I notes and practice questions

How orders are placed and matched on the exchange.

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What to know in Unit 6

Key terms, examples and exam traps

Trading hours

Currency derivatives trade on weekdays from 9:00 am to 5:00 pm, subject to exchange schedule.

Example. A trader places an order at 4 pm.

Exam trap. This statement is false: Currency derivatives trade round the clock.

Order types

Exchanges allow market, limit and stop-loss orders, with validity such as day or immediate or cancel.

Example. A trader places a limit order at a stated rate.

Exam trap. This statement is false: Only market orders are allowed.

Order matching

Orders are matched on price-time priority in an electronic order book.

Example. The best priced and earliest order is filled first.

Exam trap. This statement is false: Orders are matched manually by the exchange.

Trading members and clients

Trading members execute for clients, and clients must be registered with unique client codes mapped to PAN.

Example. A client trades through a registered broker.

Exam trap. This statement is false: Clients may trade directly without any member.

Permitted participants

Resident individuals and entities may trade in exchange traded currency derivatives only with underlying exposure limits for certain pairs, and FPIs have separate limits.

Example. A trader without exposure is limited to a position cap.

Exam trap. This statement is false: Anyone may take unlimited positions.

Operating range

Exchanges set daily price bands to restrict extreme movements in contract prices.

Example. An order outside the range is rejected.

Exam trap. This statement is false: There is no limit on daily price movement.

Price bands and circuit breakers

If prices move beyond set limits, trading can be paused to calm the market.

Example. Trading halts after a sharp fall.

Exam trap. This statement is false: Circuit breakers apply only to equities.

Trade confirmation

Trades are confirmed through contract notes issued by the broker.

Example. A client receives a contract note after execution.

Exam trap. This statement is false: Contract notes are issued monthly.

Client code modification

Modifying client codes after trade is restricted and subject to penalties, to prevent misuse.

Example. A broker cannot change codes freely to shift trades.

Exam trap. This statement is false: Client codes can be changed any time.

Contracts on offer

Different currency pairs and expiry months are available, with near-month contracts typically being most liquid.

Example. Near-month USD-INR futures see heavy trading.

Exam trap. This statement is false: Far-month contracts are the most liquid.

6 practice questions

Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.

Q1. Which statement best describes “Trading hours”?

  1. Arbitrageurs exploit price differences in the same or related instruments across markets to earn low-risk profit.
  2. Currency derivatives trade on weekdays from 9:00 am to 5:00 pm, subject to exchange schedule.
  3. Interest rate parity links the forward rate to spot and the interest rate differential, so the currency with higher interest rate trades at a forward discount.
  4. Regimes range from fixed to floating; India follows a managed float where the central bank may intervene to curb volatility.

Q2. Which term is described here? Trading members execute for clients, and clients must be registered with unique client codes mapped to PAN.

  1. Currency option
  2. Accounting at settlement
  3. Protective put
  4. Trading members and clients

Q3. Which statement best describes “Contracts on offer”?

  1. Products should match the client's needs and understanding, and mis-selling is a violation.
  2. Complaints should be acknowledged and resolved within prescribed timelines.
  3. Different currency pairs and expiry months are available, with near-month contracts typically being most liquid.
  4. Exchanges also offer futures on EUR-INR, GBP-INR and JPY-INR and cross-currency pairs.

Q4. Which term is described here? Modifying client codes after trade is restricted and subject to penalties, to prevent misuse.

  1. Vega
  2. Client code modification
  3. Interest rate parity
  4. Arbitrageurs

Q5. Which term is described here? Exchanges set daily price bands to restrict extreme movements in contract prices.

  1. Transaction costs
  2. Operating range
  3. Hedging a receivable
  4. Choosing between futures and options

Q6. Which term is described here? Exchanges allow market, limit and stop-loss orders, with validity such as day or immediate or cancel.

  1. Rho
  2. Time value
  3. Initial margin
  4. Order types
See the answers in the free mock

Frequently asked questions

How much of NISM Series I comes from Unit 6?

Unit 6 (Trading mechanism) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.

What should I study in NISM Series I Unit 6?

Trading system and hours. Orders and matching. Price limits.

Are these NISM Series I practice questions free?

Yes. Take the full free mocks to see the correct answer and the reason for every question.

Next

← Unit 5Strategies using exchange traded currency derivativesUnit 7 →Clearing, settlement and risk management

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UpperCrust Academy is independent study material from UpperCrust Wealth. It is not affiliated with NISM, SEBI or AMFI. For education only. Not investment advice. Always confirm the latest syllabus and rules on the official NISM website.

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