Several new brokers have set up shop to operate in the derivatives segment. The number of derivative brokers, particularly in the currency segment, has seen a spurt this year as investors have shifted to low-cost options and trading in currency has picked up pace.

The number of derivative brokers has risen from 1,705 in 2009-10 to 2,111 in 2010-11, a rise of about 24%, figures from the latest Sebi Bulletin show. On the other hand, the number of currency derivative brokers has grown from 1,459 to 2,008 in the past year, a rise of 37%.

?Volumes have grown exponentially in the F&O segment in the past few years even as cash volumes have remained largely unchanged,? said Amit Gupta, chief manager ? research, ICICI Securities. ?Traders are attracted to the derivatives segment as they can take positions by leveraging.? Typically, investors have to pay about 20% of the total traded value upfront for derivative trades and this has encouraged traders to speculate in the market, added Gupta.

Lower Securities Transaction Tax (STT) is another reason traders have flocked to derivatives. For derivative trades, an STT of 0.017% is charged only on sell-side transactions and an additional 0.125% on settlement value is charged if option contracts are exercised. For the cash market, an STT of 0.125% for delivery trades and 0.025% for intra-day trades is applicable.

Introduced in the second half of 2008, currency derivatives volumes have picked up significantly as well. The average daily trading value on NSE in the currency derivatives segment has nearly doubled from R7,428 crore in 2009-10 to R14,795 crore in 2010-11. Similarly, on MCX, average daily trading value has doubled from R 8,103 crore to R16,843 crore in the past year.

With the equity market not doing too well, market observers believe this might be the right time for brokers to foray into currency derivatives. ?The interest in currency broking is rising. It is a good way to diversify one?s business,? said Naveen Mathur, associate director, Commodities & Currencies, Angel Broking.

The opportunity for arbitrage is another incentive. ?The currency segment offers better arbitrage opportunities than cash-futures arbitrage,? said Divyesh Shah, CEO, Indiabulls Securities.