Stocks and equity trading are very familiar to most people nowadays, but the high potential of currency trading is yet to discover. Currency trading is one of the largest financial markets in the world where trading over $5 trillion occurs in a day. The economy in India has a strong foothold and it hosts numerous international business giants. Moreover, the country’s stable and robust financial system throws excellent opportunities and high-profit prospects. Today, thanks to the forex trading benefits in India, the market is on the rise in this country. Not only banks and institutional investors, but also retail participants can leverage this market full of opportunities today.
The basics of Currency Trading
Always remember that this type of trading is always between a pair of currencies. It is different from stock market or equity where traders buy a share of one company. It focuses on taking a position on a currency pair instead. For example, the EUR/USD rate represents the number of US dollar that can be bought by one Euro. If the trader predicts that the value of the Euro will increase against the US dollar, then they would use US dollars to buy Euros. When the exchange rate rises, the Euros can be sold back to cash in the profit.
Things Needed To Start Currency Trading
You may take the following steps to begin trading in India. The market in India is growing rapidly, and it is a great time for new traders to enter the space.
- First, open a trading account with a reputed broker.
- Follow the Customer KYC (Know Your Customer) norms.
- Deposit the initial margin amount in your account.
- Receive the necessary access credentials from your broker to begin.
Things To Remember While Trading In The Currency Market
To be successful as a currency trader, it is important to understand the basics, goals, and risk management. This is what you must keep in mind:
- Realise your trading style – As a trader, you must have your own trading style because this aligns to your risk profile. Before you start trading regularly, understand your trading style properly.
- Select the right platform and broker – It is important to have a good broker if you want to be successful in forex trading. A good broker would handhold the trader when it comes to trading in India. Also, make sure to be updated about live forex market news.
- Know your limits – Before you conduct a trade, make sure to specify the entry and exit points for the trade. Keep in mind that there is no guarantee of winning a trade. So, it is extremely important to be prepared to exit when the market is not in your favour. A good idea about the possible trade scenarios can be very helpful. Instead of drowning in loss, try to keep your losses small to secure your portfolio.
Benefits Of Forex Trading In India
Some major forex trade benefits in India include:
- High liquidity – Liquidity is one of the most essential criteria for running a business. It means the conversion of the asset to cash. When it comes to volume turnover, currency trading is the largest market in the world. With just a single click, you can enter huge positions and exit too.
- Lower margin requirements – Unlike equity, forex trading lets traders buy and sell by keeping a small percentage of a position. Hence, traders can achieve the optimum rate of return on their invested capital.
- Lower entry barrier – The introduction of the derivative product in the past few years has opened the door of trading to the retail traders. Even with a small capital, traders can make a mark with the correct strategy.
- Hedging – Hedging is the process of protecting an existing investment portfolio from unforeseen losses in future. It is commonly practised by residents in order in order to secure their offshore investments and NRIs for hedging their domestic portfolio. Importers and exporters also adopt it to limit the losses from currency rate fluctuation.
- Arbitrage – The currencies are traded on an exchange such as BSE and NSE in India. The traders can benefit from the inefficiencies in the price by buying low and selling high on various exchanges.
- Speculation – A trader has to predict the price direction to gain from the highs and lows of the currency exchange rates. For instance, if there is a probability of USD appreciation with crude oil price rises, the trader would buy USD/INR future. However, they would sell USD/INR futures if there is a probability of INR appreciation.
Once you ensure your journey with the forex market, you would not have to look back. There would always be a market open in the world, even if the domestic market closes. As the decentralised market expands massively over the years, it gives millions of traders the opportunity to work hard.
Risks involved in Currency Trading
Just like the benefits, forex trading also involves a high risk of loss. Since traders deal with currency pairs, there are many variables. However, any investment or trade is associated with risks. When you trade currency, limit the risks by not trading depending on borrowed funds. Also, make sure to never stretch yourself. These two are major risks in trading. Another thing is, like any other investment, you will win more trades on some days and lose more on other days. You can learn from your mistakes to use them for success later. It is a good habit to maintain a journal about your trades and mistakes.
The Importance Of Risk Management Via Derivatives
Like most financial tools, currency prices are highly volatile because various political and economic conditions affect it. However, the most important ones include political stability, interest rates, inflation, and international trade. Governments are able to participate in the forex market through central bank intervention to create an impact on the value of their currencies. To influence, they either use their domestic currency to flood the market and lower the price or raise the price by buying. The market can also be rendered unstable in India by large market orders by mammoth corporations. When a country’s export earnings rise, its foreign exchange supply increases. Similarly, demand increases when imports rise.
Other factors that may influence it include the directional viewpoints of market participants, confidence in the economy of the country, and expectations of national economic performance. All these interventions can be the reason for high volatility in currency prices and trading in India. However, the size and volume of the market in this country make it very hard for a single entity to drive the market for any period. Exchange-traded futures are a great tool for this kind of hedging due to greater transparency, accessibility, liquidity, and counter party guarantee.
Top Forex Brokers To Trade In India For Beginners
If you are beginner, then these brokers are a great place to start:
- IC Markets: This international broker is often preferred by brokers due to its high-frequency execution of trades.
Visit IC Markets to know more.
- AvaTrade: Licensed by renowned regulatory bodies, AvaTrade has become a universally recognised broker in the forex industry.
- IG: Founded in 1974, IG is recognised as a legitimate forex broker by millions of traders worldwide.
Visit Ig Markets to know more.
The Bottom Line
Trading in India is contributing to the national economy significantly thanks to its volume, size, and trading frequency. Since all sizes of businesses have made up the economy, anything good for business can boost the national economy directly. If you are a newcomer, open a trading account first with a broker. You can research on the internet and follow top traders to get recommendations on firms. Keep in mind that broker must be chosen very wisely. Lastly, keep yourself updated on the global market trends. You will notice that trading is a great opportunity. The forex trade benefits in India make it even easier for traders here.