Detailed information about currency trading basics in India

Currency trading, also known as Forex Trading, is the most preferred investment option other than the regular salary income. Investors, who indulge in investing in stocks, bonds and mutual funds, including currency trading, are witnessing good returns lately. Currently, the global currency trading is quite bigger compared to other income options, including stocks. More than the US $4 trillion in currencies are traded every single day, including the electronic trading platforms.

Before getting into this trading, one should know that currency prices are not just affected mainly by political and economic changes, but interest rates, international trading and inflation also create effects. The market of currency trading in India is in trillions and allowed within exchanges like BSE and NSE under the guidelines of RBI. Moreover, the main currency pairs are USDINR, EURINR, GBPINR and JPYINR.

Some quick facts about currency trading are:

• Currency trading in India is done from 9.00 to 5.00 pm at BSE and NSE.
• To do currency-trading India, you need to connect with professional trading broker helping you to trade on right share and open account.
• Only trade future and options segments in the currency market.

How Currency Trading in India works?

If you have ever involved in equity trading, then currency trading will not be that difficult to understand. In the equity trading, the rate of share matters, whereas in forex trading exchange rate considered. As an investor, you can buy or sell trading currency pair as per the expectation of currency movement. To understand more, below is an example:

Suppose, the rate of dollar is increasing and is trading at Rs 64, and you expect the price to grow at Rs 67 in the next few months. You can then enter by buying USDINR contract on the exchange. In case if the price touches Rs 67, then you get the profit of Rs 3 per dollar. So in the single investment of 1000$, you will earn Rs 3000.

To understand more about how currency trading works, you must connect with a certified trading broker. This will also help you to invest in shares or currency with full confidence.

Trading currency terminologies

Before you get involved in currency trading, you must know some terminologies. These terminologies are regularly used when you trade. Some of the terminologies you must know the following:

Exchange Rate - The exchange rate is the price or the number of units of the specific nation's currency. The exchange rate is what you need to surrender to acquire one unit of the country currency.

Spot Price - The price at which the currency trades in the spot market is called Spot Price. If you are trading in USD/INR, then the spot value is T + 2.

Contract Cycle - SEBI has recognized exchanges having one-month, two-month and three-month. This can also go to the twelve-month expiry cycle.

Final Settlement Date - Final settlement is the date of the last business day of the month. It is the closing date for each contract.

Contract Size - The contact size depends on the exchange rate. In USD/INR it is USD 1000; EUR/INR it is EUR 1000.

Cost of Carry - It is the relationship between future prices and spot prices. Cost of carrying measures the storage cost plus the interest rate that is paid to finance or carry the asset until the delivery is done.

Who can fall under the trading currency market in India?

Any Indian resident or financial institutions have full right for currency trading. However, Foreign Institutional Investors (FII) and Non-Resident Indian (NRI) cannot do the trading.

Currency Trading is not for everyone

Although forex trading can give you the best return if done with proper research, there is a huge risk involved. If you engage with uninformed brokers, you will end up making huge losses. The trading may not be for everyone. There are certain myths about currency trading in India which you must be aware of the following:

• You can make easy money - No, you cannot make easy money. However, it depends on how strategically you do trading.
• Follow the crowd - In trading, it is better to make informed decision than to follow the herd. Only a trader knows where his interest lies and should study the market before making a decision. At times, the less popular stock may serve your requirements than the popular or the most traded ones.

Bottom Line

Currency trading in India can be rewarding when the right securities are traded. With proper research and experience the investors and addressing the misconceptions will help in earning passive income in the stocks.