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What is Currency Trading?
Foreign Exchange markets give continuous price quotes to Investors. This allows Investors to trade Indian Rupees INR in exchange for many major foreign currencies, such as US Dollars(USD), Euros(EUR), British Pounds (GBP) etc. Further, it enables them to exchange any of these foreign currencies against one-another (eg. USD vs EUR). This is the right time for retail investors, who have the power to tap the Foreign Currency market directly, to unlock its profit potential, in a protected environment via currency trading.
What is the Foreign Exchange FOREX Market?
When you trade in Forex, you are trading in the world’s largest financial market. You will be rubbing shoulders with a variety of members or participants such as:
Such a huge number of participants increase the depth of the market, by their active presence ensuring liquidity. This is a continuous 24 hour market which never sleeps, beginning the trading day in Asia, followed by Europe and then the Ameicas. Unlike the Share or Commodity markets, a predominant portion of trade in the Forex market is carried out ‘Over-The-Counter’ and not via Exchanges such as BSE or NSE. Not all foreign currencies are traded liberally against the Indian Rupee. Many countries impose varying levels of control, to ensure that their home currencies remain stable and not volatile.
Benefits of Currency Trading:
- Unlike stock or commodities markets, the 24 hour nature of Forex markets make it flexible and attractive. The same currency pair could be bought or sold in various time-zones within the trading day, making it a very flexible market and a liquid one.
- Currencies can be traded for current date settlement Cash, Tom or Spot or for a future date Forwards. It can even be ‘swapped’ between dates Buy today and Sell 1 month later, paying/receiving interest costs. Currency derivatives are also available for trading via exchanges.
- Major Currencies give investors good scope to trade intraday, overnights as well as in the short and medium terms, depending on his risk appetite.
- Currency trading’s liquid market means easier to exit long or short positions, in case of loss limit situations.
- It carries lower transaction costs as direct access removes the ‘price-setting’ done by banks. Banks charge pre-agreed, flat fees which are transparent.
- Forex markets give the benefit of leverage to investors. This is the capacity to trade large amounts or take large exposures, with smaller down payments or margin requirements.
Frequently Asked Questions (FAQ)
Investors are now allowed to trade in foreign exchange within limits set by approved Brokers and Banks, using electronic platforms which have been whetted and approved. Currencies can also be chosen by the investor, amongst the major traded ones such as USD, EUR, GBP, etc. All amounts are however, translated to INR for accounting purposes and settlements.
RBI rules for Forex retail trading are:
No cap on number of trades per day, subject to limit set by bank
Maximum limit for each transaction is USD 5,000,000 (USD 5 million)
No transaction fee if daily transaction does not exceed USD 50,000
Above USD 50,000, a transaction fee of 0.0004% per day, levied by CCIL(Clearing Corporation of India)
Traders must open a Currency Trading Account with registered entities, as a first step. The trading in foreign currencies can now be carried out over digital platform and apps. Consistent research and following the price movements in the market over a period of time is definitely the path before a trader commences currency trading. Using various charting tools and identifiable patterns helps take long or short position in trading currencies at the right time and exit at optimal points, booking profits.
Currency forwards, swaps, Interest Rate swaps, Cross currency Futures and Options are all available in India for hedging and trading purposes. Most derivatives are confined to exchanges such as NSE and BSE.
