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How Forex Trading works? How to do Forex Trading in India?

Updated on February 26, 2016

How to do Forex Trading in India?

How Forex Trading Works? Before we learn how to do Forex trading in India, let’s see what Forex Trading is all about. Forex Trading is basically buying and selling currencies on the Forex (foreign exchange) market to make money. Currency exchange rate is the rate at which a particular currency can be exchanged for another. It is always quoted in pairs. A widely traded currency pair is EUR/USD. In India, a widely traded currency pair is USD/INR (US dollar and Indian Rupee). Exchange rates between currencies fluctuate due to various factors like industrial growth, inflation, central bank policy and political decisions. Today, the exchange rate for the INR against the US Dollar is roughly Rs. 67 per dollar. This means that 1 US dollar can purchase Rs. 67. If you believe that US dollar will increase in value against the Indian Rupee, you can buy US Dollars with Indian Rupees. If the exchange rate increases, you can sell the US dollar and make a profit.

Forex is the world’s largest market with nearly $3 trillion US dollars in daily volume. Compared to equity market, Forex trading offers you more leverage and speculation. Instead of tracking hundreds of stocks, you could focus on a handful of currencies. Compared to stock market, the commission amounts involved is also less. In Forex trading, dealers generally make money by bid-ask spread i.e, the difference between the highest price at which a buyer is willing to buy a currency and the lowest price at which he/she is willing to sell it. For example, if the bid price is $25 and the ask price is $27, then the bid-ask spread is $2. The size of the spread varies across assets mainly due to the difference in liquidity

However, bear in mind that Forex Trading involves risks as the currency situation is volatile globally. A single event like an Oil shock or Currency devaluation can change the value of currencies overnight and put exchanges rates out of order. Therefore you must enter Forex markets only after gaining adequate knowledge. If you have already secured your investment portfolio and ready to put rest of the money in speculation, you can choose to enter Forex Trading. You must put only your risk capital into forex trading

Forex Trading in India:

In India, one can trade currencies benchmarked against the INR. One can trade with Indian Brokers providing access to currency derivatives on Indian exchanges like NSE, BSE, MCX-SX etc. Only currency pairs involving India rupee can be legally traded on the exchanges

Currently, the traded currency instruments are USDINR, GBPINR, JPYINR and EURINR. Trading on other pairs is illegal. Trading in forex market through online brokers is illegal in India

The above restrictions are brought by RBI to ensure that precious US dollars in our foreign exchange reserve don’t move out of India. We use US dollars whenever we import oil or Gold from other countries. It’s already a burden on the exchequer. If people in India are allowed to trade with out of India players and if they lose, then they would have to buy these precious dollars from RBI to pay them.

Forex market is very volatile. Technical expertise is needed to be successful in Forex trading.

How to start Forex Trading in India? To start trading in Indian currency pairs, you can open a currency trading account with one of the major firms like HDFC or ICICI direct. Always select a trustworthy broker. Ensure that the brokerage charges are reasonable. With lot of brokers now offering services in India, the charges have come down. Most Brokers offer Demo account option as well.

Beware of Scams: Of late, there have been a number of scams in the Forex trading. So Beware while entering Forex Trading

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