7 Things to Know About Currency Trading in India
In this article, you will get to know 7 things about currency trading, which can be really helpful for you to make the right investment related decision.
The initial strive towards investing comes from the stock and equity trading but there is high-potential growing market which people are unaware about and it is the currency trading or foreign exchange trading market. India’s financial system has transcended from a controlled to a liberalized environment over the years and has become the third most attractive destination for Foreign Direct Investment (FDI). It has become the ground for tremendous growth and smooth opportunities and has become the right place for currency trading. It is basically a place of exchange of the international currencies and here we are going to breakdown the entire structure about currency trading in India.
What is currency market?
There is huge scope around the world where participants buy and sell currencies and these participants comprise of banks, corporations, investments management firms, retails forex, stock brokers, central bank (like RBI in India), hedge funds and investors. It’s a very powerful investment and hedging tool where in two currencies can be exchanged at a future at a specific rate. If you hear words like forex trading or FX trading, it is the same thing as currency trading.
1. What is Currency Trading Market in India?
Currency trading has been quite popular in India for quite some time. The segment allows for traders to trade over the fluctuation in the prices of the currency over the period of time and earn profits through that. The currency trading in India is done on the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), and Multi Commodity Exchange Stock Exchange (MCX). The time was trading is from 9am to 5pm. You needn’t have any equity or cash for trading in currency and you are allowed to trade future and options.
These are contracts for the future for currencies that specify the price of the exchange rate of one currency for the other at a future date. They are derived from the spot rate of the currency pair and used to hedge the risk of receiving payments in a foreign currency.
These are derivative contracts that enables the buyers and sellers to buy and sell the currency pair at a pre-determined price (known as strike price) on or before the date of expiry of such contracts. The buyer of this option has the right and not the obligation to exercise the option and to get the right. A premium is paid to the seller by the buyer. There are two types of currency options known as currency call and currency put. Currency call is entered into with the intention of the increase in the price of currency pair while currency put is entered into with the intent of the decrease in the price.
2. How Does the Currency Market Works?
The currencies are considered to be in pairs in the Forex Trading and your role is to predict the movement of the exchange rate. If the trader feels that Rupee might become stronger than Dollar in the pair Rupee-Dollar, they he/she will buy rupee and if the prediction is right that the trader earns a profit.
3. How to Start Currency Trading?
Currency market as we known is booming and you need to know how to successfully operate in the market. The following steps are to be taken:
• A currency trading account is required to be opened with any stock broker considering its credibility.
• Complete your KYC norms and deposit the required margin amount.
• Get the access credential from your broker to start.
4. What Determines the Change in the Market?
Currency prices are volatile and there are a lot of tools which determine the pricing but the common ones are:
• Economic and political conditions.
• Interest Rates.
• International Trade.
• Political Stability.
• Balance of Payments.
• Government Debt.
5. Things to Remember While Trading in the Market
The goal is to be succeed in this flourishing market but for that you need to be careful:
• Understand your particular trading style without making any unnecessary transactions.
• Know the limits which you can push your boundaries to. You can never be certain to make profits all the time so you must be prepared for every situation.
• Choosing the right broker is an essential element as it will help you about the live currency news and market updates and help you transact well.
6. Risks Involved in Currency Trading
Risk is visible in every form investment but there is a potential of high loss in forex trading as there are various types of risk which exists like Exchange Rate Risk, Credit Risk, Liquidity Risk, etc. The basic elements which cause the market to be risky are the unregulated nature of off-exchange trading of Forex, transactional errors, the incapability to bear short term loss and some others. With the risk elements, there is also the element to be trained to avoid any such type of risk.
7. Benefits of Currency Trading
There is a lower margin requirement where you required to only keep a small percentage of the position allowing you to achieve the optimum rate of return on deployed capital.
• A single click ensures speedy cash as the market is highly liquid.
• Hedging is prominent where one easily save up the existing portfolio from unforeseen future losses.
• If you know the possible direction to speculate, you can easily make it big. For example, if there is possibility of rise of USD appreciation with some factor increasing, the trader will prefer to buy USD/INR future.
A Final Thought
With all facts known and analysed, we know that currency market is a lucrative opportunity. It is a significant contributor to the growth of the national economy owing to the volume of trades. The only trick is to select the right broker and staying up to date of the news in the global market and you can make it big in the currency trading.