EVERYTHING YOU NEED TO KNOW ABOUT FOREX TRADING IN INDIA

  • December 13, 2020

The Indian forex trading industry offers immense potential for earning huge profits. INR, when paired with other currencies such as USD and EUR can provide attractive returns with an increase of almost 1000 pips in just a couple of weeks. In other words, when it comes to trading forex in India, you need to be patient to earn profitable returns and rewards in the long-term.
In this article, learn everything you need to know about forex trading in India.

What Is Forex Trading? How is Forex Trading done in India?

Similar to stocks, one can sell or buy forex currencies based on what they think would be their value in the short or long-run. Often, traders strategize and speculate the value of a currency and where it is likely to head in the long-term to earn attractive gains. However, given the highly volatile nature of the market, you must create a well-thought-out plan before trading forex in India.

Thus, Forex trading, also known as currency trading or foreign exchange trading, is essentially a decentralized global market, wherein all the foreign currencies from across the globe are traded, bought, and sold. The forex trading market is a highly liquid and largest market in the globe. The daily average trading volume of the market amounts to nearly 5 trillion dollars.

In essence, forex trading India-wide takes place when a trader buys and sells one currency in exchange for another as part of one single transaction. The two forex currencies that are involved in one transaction are referred to as the currency pair.

In India, forex currency trading has gained a great deal of attention and momentum over the past couple of decades. It is carried out through the BSE i.e. Bombay Stock Exchange, NSE i.e. National Stock Exchange, as well as Multi-Commodity Exchange Stock Exchange. So, if you are wondering how forex trading works in India, then you must know that it has become an emerging platform for trading a wide range of currency pairs. Investors looking to earn profits rely on forex trading in India to make profits as a result of price fluctuations.

The duration for trading currencies in the Indian market is between 9 am to 5 pm. Traders are not required to have cash or equity for trading currencies. Also, traders can trade futures and options when it comes to forex trading in India.

It must be noted that trading currencies weren’t a huge deal in the country before future derivatives were introduced in the world of forex. While forex currency trading in India was available to corporates and banks earlier, the future derivatives market was opened up for individual investors later. With liberalization, it became easier to hold and trade currencies, particularly for banks and corporates.

Is Forex Trading Legal?

Is forex trading in India legal? Well, forex currency trading is considered legal in India when an individual carries it out via specific forex trading platforms as well as INR remains the base currency. In other words, the government of India has restricted trading for its residents to only those currencies that have been bench-marked against the INR.

As a resident of India, if you choose to trade via any specific Indian Brokerage and accessing exchanges like BSE, MCX-SX, and NSE that offer access to forex currency derivatives, the transactions carried out are all considered to be entirely legal. Before this, the only currencies that were offered were GBP/INR, EUR/INR, USD/INR as well as JPY/INR. But the RBI, from the 10th of December 2015, allowed financial exchanges to provide cross-currency futures as well as exchange-traded options in 3 other currency pairs including, GBP-USD, USD-JPY, and EUR-USD.

Since there isn’t any equity or cash form like in the case of the stock market in India, traders must create their trading accounts with a reputed broker for conducting forex trading in India.

Strategies for Forex Trading in India

Given that the forex trading in India is highly liquid (in terms of daily volume traded), it can be risky, and hence one can lose money quickly. However, if investors create and stick to their forex trading strategies, then earning profits won’t be too difficult. Below, take a look at some of the strategies for forex trading in India.

  • Price Action: This is one of the most common strategies used by traders in the country. It is entirely dependent on the bears or bulls of the pricing action in forex currency trading as well as is useful in different market conditions.
  • Trend Trading: This trading strategy requires traders to identify any movement (whether downward or upward) of the forex currency price. Based on this price, they must decide their point of entry. Also, online tools like stochastic, moving average, relative strength indicators, etc. are all available that help traders to better analyze market trends.
  • Counter Trend: In this particular strategy, trade is carried out against the existing trend to earn small profits. It is based on the speculation or prediction that market trend will likely reserve.
  • Range Trading: In this strategy, trades are carried out in a particular range of forex currency prices. This strategy helps in identifying the suitable price conditions for trading, wherein the pricing levels are based on the supply and demand for the forex currencies.
  • Breakout Trading: In this particular strategy, traders enter the market at a point when the currency market is coming out of the previous forex trading range i.e. breakout.
  • Position Trading: This particular strategy is utilized by the professional and veteran traders and revolves around analyzing the forex charts after the day has concluded. One must have a solid understanding of the market fundamentals to master this strategy.
  • Carry Trade: In the carry trade strategy, the emphasis is mostly on the difference in the rate of interest of the nations whose forex currency is selected for trading. This entails selling the currency that has a low rate of interest and purchasing the one that has a high rate of interest. Hence, it can be a successful strategy when executed appropriately.

Who is eligible to trade in Currency Futures markets in India?

When it comes to forex trading in India, any citizen residing within the nation’s territory or a firm including, financial institutions, as well as banks, can take part in the currency futures market. But, FIIs or Foreign Institutional Investors, as well as NRIs or Non-Resident Indians, are restricted from taking part in the futures market.

Is Forex trading profitable in India?

The Indian economy is quite strong and offers the immense business potential to numerous international brands, owing to its market size and sound financial market. Given the existing scenario, forex currency trading is undoubtedly profitable in India. It offers traders with tremendous scope to earn profits through the trading of currencies

However, the forex trading sector is highly volatile, and in the absence of a clear strategy, one can end up incurring losses. This is why it is important to acquire appropriate skillsets for trading. Another important thing about the Indian forex trading market is that with the introduction of derivatives, currency trading has witnessed major growth in India. It opened up the world of trading for investors and individuals, which was earlier restricted only to large corporates and banks. Also, liberalization gave a boost to currency trading further, allowing both corporations and banks much flexibility in trading as well as holding currencies.

One of the advantages of forex trading in India is available in the form of margin trading. One can trade currencies for huge profits with only a small amount of deposit. The margin needed for trading 1 lot of the USD/INR in the National Stock Exchange is nearly 1500 INR that accounts for almost 2.5% of the total investment.

So, if you are keen about forex trading in India, then you must conduct an in-depth market analysis before trading currencies forex as well as investing your money in them.

Which currency pairs can be traded in India?

As already stated earlier, the Indian government allows investors to trade only the below-mentioned currency pairs:

  • Rupee-pound
  • Rupee-dollar
  • Rupee-euro
  • Rupee-yen
  • Pound-dollar
  • Yen-dollar
  • Euro-dollar

Conclusion

In a nutshell, to achieve success in forex trading in India, traders must get their basics right. It is equally important that they focus on their goals as well as risk management strategies to earn desired profits. Investors must assess their trading style before making any trading decision. Also, forex trading enthusiasts need to assess their risk profile before they make any investment. Another thing to bear in mind is the choice of the right platform or broker. Remember, having a reputed broker for trading is crucial for success.

A broker will not only handhold you but also provide you with updated live forex market news apart from helping you to open a forex trading account in India. Lastly, traders must know their limits before they jump into any trade. They must specify the exit and entry points for trade as well as leave the market when the conditions are not favorable.

Remember, like any other form of trading, the currency market has its own set of risks, and therefore one should never trade with borrowed funds or think of stretching themselves. Also, on certain days investors will end up placing several winning trades, and on other days they may end up having more losing trades in their portfolio. It is only ideal that traders learn from their mistakes and create the best strategies for profitable trading..

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