Looking for information on online currency trading in India? Or are you unsure about how to legally trade forex in India? Foreign exchange, on the other hand, is the world’s largest decentralized global market in which every currency in the world is traded. Currency trading in India is the most liquid market in the world; however, the legal status of forex trading in India remains a big question, and the majority of people don’t know the answer. So, through our blog, we will give you an insight into forex currency trading in India.
What Exactly Is Forex Trading? What is the procedure for Forex trading in India?
Forex (FX), also known as foreign exchange or online currency trading, is a global, decentralized market in which all currencies from various economies are traded (sold and bought). The forex market is the world’s largest and most liquid market. The global stock market does not even come close, with an average daily trading volume of $5 trillion. Simply put, forex trading is the act of purchasing and selling currencies For example, if you converted your rupees (INC) into euros during your trip to France, the forex exchange rate between the two currencies, based on supply and demand at the time, determined the number of euros you received for your rupees. Furthermore, the exchange rate is highly liquid and constantly fluctuates, necessitating lucrative skills and broad insights into the market-based trading system.
What is Forex?
Currency, like stocks, can be bought or sold based on what you believe its value is or by simply predicting where its value will go. It is legal to trade Forex on Indian exchanges such as the BSE, NSE, and MCX-SX. You can, however, hit big or lose it all just as easily. If you believe the value of a currency will rise or fall, you can buy or sell it accordingly. With such a flexible market, finding a buyer when you’re selling and vice versa is much easier than in any other market space.
Forex trading occurs when the purchase and sale of one currency for another occurs as part of the same transaction and at the same time. The two currencies involved in the transaction form a currency pair, with three letters representing each one – the first two letters representing the country’s name, and the third letter representing the currency’s name, for example. Indian Rupees: INR, US Dollar: USD, Eastern Caribbean Dollar: ECD, Australian Dollar: AUD, Japanese Yen: JPY, and other currencies.
How does online currency trading work?
Online Currency trading, also known as foreign exchange or Forex, is the buying and selling of currencies for the sole purpose of profit. It is also known as speculative Forex trading.’ To summarise, ‘currency trading’ and ‘forex’ are generally synonymous, but the former is done with the intention of profiting from the transaction.
Assume you want to profit from the increasing value of the dollar. If you believe the price of the dollar will rise and reach Rs 67 in a few months, you can enter a long position on the exchange by purchasing the USDINR contract. If the price falls to Rs.67, you will profit Rs.3 per dollar. So you can earn Rs.3000 in a single contract of 1000$.
Why do we have Exchange Traded Currency Derivatives?
An Exchange-Traded Derivative is a financial contract that is listed and traded on a regulated exchange. Simply put, these are the types of derivatives that are traded in a regulated environment. The value of an exchange-traded currency derivative is derived from an underlying asset that is traded on a trading exchange.
It should be noted that ETDs include futures contracts as well as options contracts; that is, one can use a currency future contract in the form of Exchange Traded Currency Derivatives (ETDs) to exchange one currency for another at a future date at a price determined on the date the contract is purchased. In India, such derivative contracts are used to hedge against higher-value currencies such as the US dollar, euro, British pound, and Japanese yen.
How does the Forex market work?
Unlike shares or commodities, forex trading occurs directly between two parties in an over-the-counter (OTC) market, rather than through exchanges. The OTC market is divided into three types: spot, forward, and futures forex markets. Forex trading entails selling one currency to purchase another, which is why it is quoted in pairs. In other words, the price of a forex pair is the value of one unit of the “base” currency in relation to the “quote” currency.
For example, GBP/USD is a currency pair in which the Great British pound is purchased and the US dollar is sold, which explains the prefixes ‘P’ for Pound and ‘D’ for Dollar.
Furthermore, currency pairs can be classified as follows:
Major pairs are heavily traded. Count to seven(07) currencies that account for 80% of global forex trading: EUR/USD, USD/JPY, GBP/USD, and USD/CHF.
Minor pairs are traded less frequently. Instead of the US dollar, these frequently feature major currencies against each other – EUR/GBP, EUR/CHF, GBP/JPY.
Exotics – A major currency versus a currency from a small or emerging economy – USD/PLN, GBP/MXN, EUR/CZK, etc.
Regional pairs – EUR/NOK, AUD/NZD, and AUD/SGD are examples of regional pairs.
A person can trade forex in a variety of ways, including buying one currency while selling another in the same transaction. Forex trade transactions have traditionally and for a long time been made through a forex broker. However, with the growing popularity of online trading, one can easily take advantage of the benefits of forex price movements by trading derivatives such as CFD (leveraged products that allow a trader, either individual or institutional, to open a position for a fraction of the full value of the trade).
Although leveraged products can increase profits, they can also increase losses if the market moves against you, which is why CFD trading is prohibited in India.