India's biggest stock exchange will start trading in currency futures on August 29, the first time the product has been made available in the subcontinent and a move long awaited by the local financial community.

"For the first time in India, it will be possible to trade on currency futures on an exchange platform," said the National Stock Exchange, which earlier this month received an in-principle approval from India's stock market regulator to offer the derivative contract.

The NSE's announcement was welcomed by market players because the contract will make it easier for bankers, brokers and private investors to interact in the currency market and to hedge their foreign exchange risks when trading.

"As brokers we will have new instruments to trade and it will make everything much more transparent," said Sandeep Singal, head of futures and options at Emkay Global Financial Services.

In India, there is already an active over-the-counter market for currency forwards, swaps and options with an average daily turnover of $34bn, according to the NSE, which is India's biggest stock exchange in terms of volumes traded. However, this market is virtually non-accessible to individuals as trades are arranged directly between counterparties.

The NSE's new electronic trading platform is expected to attract many small private investors, according to market players.

Foreign Institutional Investors and Non-Resident-Indians will not be allowed to trade directly, but this is expected to change once the local market has reached a maturity level, said traders.

The news came as the Indian rupee touched a 17-month low against the dollar on Wednesday at Rs43.78. However, it later recovered after some state-run banks stepped in to halt a sharper fall. Since the beginning of the year the rupee has fallen nearly 10 per cent.

The NSE's rival Bombay Stock Exchange and India's Multi Commodity Exchange have also filed an application to the Securities and Exchange Board of India to start trading currency futures but have not received any positive feedback yet.

The BSE's outgoing chief executive Rajnikant Patel told the Press trust of India earlier this month that he hoped to "launch the future contracts in currency by end of August or early September."

The NSE said that currency futures contracts would have a maximum value of $1000, although they will be settled in rupees, and each contract will have a 12 month maturity period.