uTrade Algos
Currency trading, also known as foreign exchange or foreign exchange trading, involves buying and selling currencies from different countries to make a profit. The US Dollar is the most widely traded currency in India, and the other currencies traded are the Euro, Japanese Yen, and British Pound.
The concept of currency transactions is to buy and sell currencies at different prices, selling them at higher prices or buying them back at a lower price. A difference between buying and selling prices, called the spread, is what traders can make a profit on. A better understanding of how to trade currency in India is explained in this guide below. So, let’s read ahead to find out how to trade foreign currency.
Understanding What Is the Currency Market?
Essentially a global, decentralised market that serves as the trading platform for currencies, currency markets are also called foreign exchange markets. In general, the global currency market operates on two levels, as mentioned below.
The Interbank Market
Some of the biggest banks in the world are prominent players in this area of the currency market. These banks exchange currencies with one another in this interbank market, and they conduct large transactions among themselves. This is a special part of the foreign exchange market.
Over-the-Counter Market
This is the section of the currency market in which companies and individuals are allowed to trade in currencies. Anyone can participate in currency trading by means of a broker and an online trading platform.
Basics of Trading in the Currency
In the currency market, buying and selling currencies are always done in pairs. The exchange rate, which is the price of one currency as compared to another, determines the value of these transactions.
Appropriate symbols are used to identify the exact nature of a currency transaction. For instance, the Indian Rupee is represented by INRs, and USDs represent the US Dollar. The deal would be indicated as INR/USD if you wanted to exchange Indian Rupees for US Dollars.
What Are Currency Pairs and How Are They Traded?
There are two separate pieces in a pair of currencies, namely the basic currency and the quotation currency.
- The base currency shall always be expressed as one unit. In India, these currency pairs are the basis for foreign exchange trading. However, there are limited trading hours for foreign exchange on currency futures contracts compared to a global currency market that trades 24 hours per day.
- Generally, the INR is the quote currency, and the USD is the base currency in trades involving Rupees and Dollars. So, when we’re writing USD 1 to INR = ₹79, the USD is the base currency, the INR is a reference currency, and ₹79 is the value. In 1 unit, the basis currency is always indicated.
How to Trade Foreign Currency in India?
Remember the points below to understand how to trade currency in India.
- Currency futures and currency options are offered in India by the National Stock Exchange and the Bombay Stock Exchange.
- Though other contracts are starting to catch up, the USD/INR pair is still the most liquid. Specifically, foreign exchange options and currency futures are comparable to the derivative markets for commodities and stocks.
- Currency futures can be traded by traders who wish to take a position on the currency.
You can buy USD INR futures if you expect the US Dollar to rise against the INR. On the other hand, you may sell USD INR futures if you expect India’s currency to appreciate. Currency trading margins are also very small compared to the equity and commodity markets.
How to Start Trading in Currencies?
Follow the below steps to commence forex trading in India.
Step 1: Open a trading account
You can open an online currency exchange account on the trading platform at absolutely no cost, and you’ll start to trade immediately.
Step 2: Start looking into it
Knowing what you’re buying or selling and when it’s a good time to do so is essential.
Observe trends closely. Patience is the name of the game. If the Indian Rupee is weakening against the US Dollar, for example, and depending on future projections, perhaps it would be a good time to buy or sell dollars.
Step 3: Invest in a small initial purchase or initial investment
Anyone who’s spent a respectable amount of time trading in foreign exchange will tell you it takes hands-on practice to understand your feelings and account for potential slippages, like an expected rate against actual execution. In addition, you’re able to make profits on a variety of levels.
Step 4: Talk to your broker about setting a stop loss or limitation order
All positions on your online foreign exchange trading account shall be closed without delay if losses exceed the set amount, e.g., no more operations will take place that day. By establishing such a system without charge, you will be able to reduce your losses.
Trading Hours for Currency Trading in India
The foreign exchange market is open 24 hours a day, five days a week, for currency trading in India. During the period of functioning of the Reserve Bank of India, currency trading takes place from 9:00 a.m. to 5:00 p.m. on Mondays and Fridays. However, the foreign exchange market is global and can be traded at any time.
The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the main channels for currency trading in India. Among other things, these exchanges provide a means of trading in different currency pairs, such as USD/INR, EUR/INR, GBP/INR, and JPY/INR. In the case of currency trading, traders can also take part through a broker’s Internet platform.
How Can You Perform Currency Trading Online?
To start currency trading online, follow the steps mentioned below.
1. Choose a Broker
- For successful currency trading, it is important to choose an appropriate broker.
- In addition to offering a dependable trading platform with an easy-to-use interface, brokers should be licensed and governed by the Securities and Exchange Board of India (SEBI).
- Other factors that have an important role in selecting a broker are those offering competitive fees and spreads due to their direct impact on profit.
2. Set Up a Trading Account
- To open an account, traders will need to complete a web application and provide the required Know Your Customer (KYC) documents, such as ID or address proof, once they have chosen their broker.
- Once the verification process has been completed, the broker will then check the data and reactivate the account.
3. Fund a Trading Account
- Traders will have to deposit the necessary funds into their currency trading account as soon as they activate it.
- The minimum deposit required by the broker shall be taken into account in determining the amount to be deposited.
- In addition, some stockbrokers do not require that additional funds be mobilised, and traders may use their existing trading account or equity fund used in the stock market.
4. Choose a Pair of Currencies
- The choice of currency pairs for trading will be the next step in this process.
- Traders are permitted to place orders in pairs such as USD/INR, EUR/INR, GBP/INR, and JPY/INR, among other offers from the exchange.
5. Execute the Trade
- Once the chosen currency pair is chosen, traders can execute their trade by making a purchase or selling order.
- In order to limit losses and lock in profits, traders may also establish a stop-loss order and a take-profit order.
Conclusion
Compared with stock trading, currency trading has a very volatile nature. It takes into account a number of global factors that influence currency movements and the need to monitor markets around the clock. Therefore, traders need to be well informed of these factors and their impact on the currency in order to have an efficient and profitable trading portfolio.