## Monday, March 14, 2011

### Trading on Japan

If you are in India, and hear news about the earthquake, tsunami and nuclear reactors in Japan, you might want to trade on this. Either because you are hedging Japan exposure that's embedded in your Indian equity holdings, or because you think you are an informed speculator who has a better and faster judgment about what these events mean for Japan.

Sadly, the Indian capital controls don't let you trade on the Nikkei 225, which is the Nifty of Japan. But there is something you can do: Trade on the JPY/INR futures trading on NSE.

Quite a few people seem to have thought like this. Here's a graph of the turnover:
Now let's pause to think about the story playing out on this market. On one hand, it's the purely domestic speculators or hedgers, who are buying and selling from each other. This is fine, but where are the linkages to the global financial system?