The facts that there are many restrictions by the Indian Government when it comes to forex trading, and less opportunities of trading compared to other countries, you may wonder if it is at all profitable to trade in this country. However, profitability of trading does not depend on such factors. Similarly, popular brokers and tested trading strategies cannot assure you success. Is forex trading profitable in India? You will have to get into the financial markets and see it for yourself. However, make sure to learn about the basics of trading before that or you may end up losing all your money before generating a single profit.
What Is Forex Trading?
Forex or foreign exchange is the process of predicting the price movements of currencies to make a profit potentially. Currencies are traded in pairs. So, when a currency is exchanged for another, traders guess whether the value of the currency is going to rise or fall against the value of the other currency. These price movements can be influenced by various factors, like political, economic, and geopolitical events, and trade flaws that leave an impact on the supply and demand of currencies. As a result, the market is always volatile. Not only does this volatility offer new opportunities to forex traders every day but it also keeps the risk level high at all times. You can buy and sell currencies from your desktop or mobile devices through online trading platforms offered by brokers.
How Does Forex Trading Work?
Forex trading or currency trading takes place in an over-the-counter (OTC) market between two parties directly. An international network of banks runs the forex market. Although trading is available almost every part of the world, the market is spread across four major forex trading centres that have different time zones. They are New York, London, Tokyo, and Sydney. Since there is no central location, traders can trade forex 24 hours a day.
There are various ways to trade forex, but at the end of the day all of them work the same way. The trader needs to buy one currency while selling another simultaneously. You need to monitor the market to look for the factors that move the financial markets and place a trade accordingly. You may open a position with a certain portion of amount in your trading account, or you can apply leverage to your trade.
CFDs are leveraged products that let you open a position for only a fraction of the full value of the trade. You do not own the asset but you can predict if the market is likely to rise or fall in value. So, leverage allows you to open bigger positions with smaller amounts, but it always increases the risk-level of losing all your money. So, be very cautious while applying it to a trade. It is better to stay away from leverage and margin trading if you are a beginner.
If you are from India and want to make a career in forex trading, note that it is a lot different than global forex trading. One of the biggest challenges is that the Indian Government allows only a limited number of currency pairs to trade. You can only trade four currency pairs with the INR as the base currency, and three 3 cross pairs. These currency pairs are USDINR, EURINR, GBPINR, JPYINR, EURUSD, USDJPY, and GBPUSD. Let’s see how forex trading works in India through an example.
Let’s say that you are trading the currency pair USDINR. Assume that the pair is trading at 74.6350. Now, if according to your speculation, the price of USD would rise in a few hours, you can purchase 100,000 units of USD. So, in order to complete the transaction, you need to deposit 7,463,500 INR in your trading account. Now you have to wait. In a few hours, the USD may rise in value to 75.0000 against the INR. This is when you need to sell the $100,000 you purchased earlier immediately and you will be left with a profit of 36,500 INR. Judging from the fact that this much profit can be generated from forex trading within a single day; it may seem that the field is very profitable. However, the story can be entirely different if your prediction goes wrong. A few losses in the forex market would easily lead you to bankruptcy.
How to Calculate Profits and Losses in Forex Trading?
The basic calculation of earnings in forex trading involves multiplying the position size by pip movement. Here, the position size refers to the units you have been traded. You can also multiply the pip value by pip movement simply. Many traders opt for using a forex calculator to make their job easier, but it is important that you understand the dynamics behind this calculation well.
Imagine that you are trading the currency pair EURUSD. Now, assume that the value has gone up from $1.2160 to $1.2180. It has been a gain of 20 pips. You already know that the standard lot size is 100,000 units in forex trading. If you close the position after buying 3 lots, you would make $600. The calculation here would be 300,000 x 0.0020. As mentioned earlier, you can also calculate it by multiplying the price movement by the pip value. So, the formula would be $30 x 20 pips. If you entered 3 mini lots instead which are 30,000 units, with the same price movement, you would make $60, calculating from $3 x 20 pips, or 30,000 x 0.0020. On the contrary, if EURUSD falls 40 pips in the same position, you will lose $90 from the trade.
Brokers for Forex Trading in India
If you are an Indian trader, you can only trade with forex brokers approved by the SEBI. Trading with an offshore broker that does not comply with the regulations and guidelines set by the RBI and SEBI is illegal and can earn you penalties and even prison. Here are the top brokers you can open a trading account with in India –
- FP Markets: FP Markets offers fast execution of trades with its advanced NY4 server. You can choose this broker to make trades at low spreads. It also allows traders to access an advanced client portal where they can track their trading decisions live. Visit FP Markets.
- FXTM: One of the best Indian brokers, FP Markets makes trading easier for new traders with its educational materials like video tutorials and seminars. You may choose from multiple types of accounts like standard, shares, and cent. To open a trading account with FXTM, Visit FXTM.
- AvaTrade: AvaTrade is an ideal broker for beginners as it offers an easy-to-use and intuitive interface. The broker also offers protection to its clients against losing positions with its AvaProtect feature. You can find an array of modern trading tools on the trading platform. Visit AvaTrade.
- XM: XM offers ultra-low spreads starting from 0.6 pips. It also offers an extensive collection of video tutorials for new traders. You can access the forex trading indicators offered by XM from multiple devices. The broker allows its clients to acquire tailored guidance from personal account managers. Visit XM.
Some other SEBI approved brokers in India are –
- Alpari
- HotForex
- Axiory
- FBS
- InstaForex
Conclusion
Anything in trading can indeed be profitable, but it depends on the trader, not on the broker. No broker can assure you success. If they are promising something like that, they are lying. You can never overlook the financial risks in the forex market. If there is a chance of profit, there is also always a chance to lose money. That is why make sure to learn all about risk management before you start trading.