The emergence of online trading platforms has bridged the gap between small traders and the global FX market. It has provided access to traders residing in countries who would otherwise not have a chance to participate. One of the first steps that you have to complete if you want to start your FX trading journey is opening a forex account. It’s a special account that holds your fund with the broker in a currency of your choice. You can access the vast forex market, unlocking the potential to gain significant returns.
But before we discuss what a forex account is, we should first shed some insight into what forex trading is.
So what is forex trading?
Forex or FX is the combination of two words- foreign currency and exchange. As the world’s largest market, the daily estimated volume is estimated to be in the $6 billion region. Unlike the stock market, every trader trades currencies in pairs. The major principle of the market is that you buy one currency and sell another. Indian traders do not need a DEMAT account for FX trading, since there is no delivery involved. The forex market does not have a central point of operation as it operates in different locations such as New York, Tokyo, London and Singapore. So always choose a broker with an international reach if you want to participate in these markets.
Compared to most other countries, the regulatory environment in India is highly restricted. The Reserve Bank of India and the Securities and Exchange Board of India (SEBI) are the two main regulators of FX trading activity in the country. Both of these institutions have somewhat relaxed their rules, allowing Indian traders to participate in the market more.
- You can trade forex derivatives in the National Stock Exchange and Bombay Stock Exchange. You can read up on the rules here. https://rbi.org.in/scripts/SearchResults.aspx?search=FX
- On the other hand, Indian traders now have access to a lot of online forex brokers which provide them with access to the international FX market, just with a stable Internet connection.
How to open a Forex account in India
Before you begin to open a forex trading account in India, you need to make sure that the broker provides you with certain advantages. Some of them have been discussed below.
- No middleman: Make sure that the broker does not have any middleman when trading.
- Standardized lot size: make sure the broker provides standardized lot sizes such as 1000 or 100,000 units of currency.
- Low commissions: Commissions can eat away at your profits, so always make sure that your broker charges fewer commissions and does not include any hidden charges.
- Transaction costs: Look to join a broker that provides transaction costs as low as 0.07% for example.
- Online access: Make sure that the broker provides an uninterrupted connection to the global FX market which is 24/7 in nature.
- High liquidity: Make sure you have access to a highly liquid market.
- Low margin and high leverage: Always consider margin requirements and allowed leverage on any platform you trade.
- Transaction time: The broker should provide you with instant executions of transactions since a small delay can affect your gains in the market.
- Account Maintenance charges: Choose a broker that can waive off your account maintenance charges for your 1st year.
- Regulations: Make sure that the broker complies with at least one international regulatory body. Australian Securities and Investments Commission (ASIC), the Financial Conduct Authority (UK) and Cyprus Securities and Exchange Commission (CySEC) are good examples.
- Insider trading: Many brokers have been accused of insider trading, which makes the market unfair. Avoid these brokers at all costs. Choose a broker that can provide as much transparency on how their platform works and how funds are stored.
Now that you know how to select a suitable broker, it is time to open your first forex trading account. Although the signup process can vary a little from broker to broker, the basic steps remain the same. You have two options, either to open a demo account or a live account.
- Opening a demo account is advised for all novice traders, especially when they try out forex for the first time. You need to get a grip on the basic concepts of forex trading and learn how the market behaves before you dive in. Most brokers offer a free demo account with virtual money that you can use to trade in a risk freeway. To open a demo account, the following steps have to be followed.
- First, choose an appropriate broker that is suitable for your trading style and preferences. You can find the option for signing up on the homepage of most broker sites.
- The broker will ask for your name, your working email address and a working telephone number in many cases. Enter this information and proceed towards email verification.
- Depending on the broker you will shortly receive an email, verifying your account, after which you will be allowed to trade with the demo account.
- If you want to use a live trading account, the steps are a little different. A live trading account will allow you to directly trade with the markets and hope for gains. You should open a live account only if you are confident with your abilities as a trader. To open a live account with a broker, follow the steps described below.
- Choose an appropriate broker which charges fewer commissions and good spreads to give you the best chances of trading success.
- Enter your name, email address and other details that the broker might request while signing up.
- Because you are opening a live account, you need to complete certain KYC requirements. Submit any documents related to proof of address or proof of identity, like a PAN Card, electricity bill or driving license.
- Then, choose the amount you want to deposit. Select a favourable deposit method such as bank wire transfer, debit or credit card or a payment processor such as Paypal, whichever is available.
- Finally, an email will be sent to you, verifying your account. The time taken by the funds to be deposited usually depends on the payment method you have selected.
After completing all of the above steps you will be ready to trade with your forex trading account.
Advantages of trading in the Indian Forex Market
Despite being heavily regulated, the FX market of India still provides certain advantages to traders. A market that was earlier accessible by big players such as institutional investors and bankers is now open to smaller, retail traders as well. Some of the advantages of trading in this market are given below
- Arbitrage: you can take advantage of the inefficiencies in the price on different exchanges such as NSE and BSE.
- High liquidity: The international currency market is one of the most liquid markets in existence, allowing you to benefit from such large trading activity.
- Hedging: Hedging is practised by Indian traders to protect their offshore investments and by NRIs to hedge their domestic holdings.
- Speculation: The forex market is highly speculative, allowing you to easily gain from the market if you have your basics covered.
- Lower entry barrier: The forex market has changed a lot with the introduction of derivative products in the last couple of years, allowing anyone with a small capital to make a mark on the market.
Final Words
The forex market provides you with opportunities not seen in any other markets. As it’s open 24/7, there’s always a market open for you to trade even if your domestic market is closed. The emergence of online trading platforms has also bolstered the participation of online trading in the world. However, FX traders should always carry out their own research before they commit to a particular broker or platform.