Indians are all too familiar with the stock and exchange markets in India. However, the foreign currency market seems confusing to many Indians. Since online forex trading offers attractive returns, it is important to know the basics before starting currency trading in India. Before engaging in any investment, you need to know the tricks of the trade.
Just like the first time you try to trade the stock market, with patience until you learn the markets well, you can tread cautiously in the currency market in the early stages of trading. Since currency is the main variable for trading, you may be nervous at first. You can learn more from your experience than any textbook can teach you, but having some basic market knowledge in relation to different asset classes can help.
In this blog, we will discuss the basics of currency trading, how to start with currency trading and some other essential information useful for making informed decisions about this trading type.
What is Currency Trading?
Currency trading, also known as forex trading or foreign exchange, involves buying and selling currencies from different countries to make a profit. In India, the most traded currencies are:
- U.S. dollar
- Japanese Yen
The basic concept of currency trading is buying a currency at a lower price and selling it at a higher price, or selling a currency at a higher price and buying it back at a lower price. The difference between the bid and ask prices is called the “spread”, and this is where traders can make a profit.
Is Currency Trading in India legal?
Unlike any other asset investment, online forex trading has not received much encouragement in India. The Reserve Bank of India imposes a series of restrictions on currency trading, so investors stay away from currency trading. They find traditional stock trading, which you start with when you open a demat account, to be simpler to understand and easier to implement. However, forex trading in India is easier than it seems at first glance.
The Reserve Bank of India has allowed trading in the foreign exchange market, provided that the Indian Rupee is used as the base currency in all transactions. In addition, the Reserve Bank of India also allows traders to add three cross-currency pairs to the list of allowed assets, including GBP-USD, EUR-USD and USD-JPY.
Trading hours for Currency Trading in India
Currency trading in India occurs on the foreign exchange market, which is open 24 hours a day, five days a week. Currency trading hours in India are from 9:00 am to 5:00 pm, Monday to Friday, when the Reserve Bank of India operates. However, the forex market operates globally, which means that trading can occur around the clock.
Currency trading in India is mainly done through National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). These exchanges provide a platform to trade different currency pairs, such as USD/INR, EUR/INR, GBP/INR and JPY/INR. Traders can engage in currency trading through online platforms provided by brokers.
New traders need to understand the risks involved in forex trading, which can be very volatile and unpredictable. You should start with a small investment and gradually increase as you gain experience and knowledge.
How to Start Currency Trading in India?
Starting forex trading in India is similar to trading stocks or other securities. The steps involved in starting a forex business in India are mentioned below.
1. Learn the basics
Before a trader starts trading Forex, it is critical to have a good understanding of the market and the different strategies used to make trading decisions. This involves studying basic terms like pips, lots, and spreads and then moving on to more advanced concepts like technical analysis, fundamental analysis, and risk management.
Traders can access many resources such as online courses, webinars, and articles that can help you learn more about forex trading or offline materials such as books and seminars.
2. Choose a broker
Choosing the right broker is crucial for success as a forex trader. Traders should look for a broker licensed and regulated by the Securities and Exchange Commission of India (SEBI) that offers a reliable trading platform with a user-friendly interface.
Another important factor when selecting a broker includes those offering competitive fees and low spreads, as they directly impact profitability. This is one of the significant factors for successful currency trading in India.
3. Open a trading account
After choosing the right broker, a trader can open a trading account by filling out the online application form and providing the necessary KYC documents, such as proof of identity and address. The broker will then verify these details and activate the account once the verification is complete.
4. Fund trading account
Once the currency trading account is activated, the trader must deposit the required amount. The deposit amount will depend on the minimum deposit required by the broker. Some brokers don’t require extra payment, and traders can use existing trading accounts and funds to trade stocks.
If required, additional funds can be paid to the trading account using one of the payment methods provided by the broker, such as NEFT, RTGS, UPI, credit/debit card, etc.
5. Choose a currency pair
The next step in this process is to choose a currency pair to trade. For example, if a trader thinks the USD will strengthen against the INR, he can buy USD/INR. Traders can trade pairs such as USD/INR, EUR/INR, GBP/INR and JPY/INR, among others offered by the exchange.
6. Make a transaction
After selecting the currency pair, the trader can execute his trade by placing a buy or sell order. Traders can also place stop-loss orders to limit losses and take-profit orders to lock in profits.
7. Track Transactions or Wallets
Monitor trades and adjust trading strategies as needed. Traders need to keep a close eye on news and market events that can affect the forex market; that’s why it’s important to have a trading plan and stick to it to avoid emotional trading.
Currency trading in India is not a new concept in the investment market and was officially launched in 2008 when currency futures were introduced and currency options were introduced in 2010. Currency trading is a very volatile form of trading compared to stock trading. This is due to many global factors influencing currency fluctuations and the need to monitor the market 24/7 constantly.
Therefore, traders need to thoroughly understand the market and their impact on currencies to have an efficient and profitable trading portfolio.
Here are some useful resources for beginners who want to learn more about currency trading in India: