Trading in any investment market can be difficult as there is a chance that one might lose money if the market doesn’t work as expected. However, there is always a chance to earn profits if the trading is done with experience, knowledge, and practice.
Published on 15 March 2023
Though there are many securities and commodities that can be traded, one of the biggest trading markets is currency trading.
The currency trading market, also known as the forex market, is one of the largest markets for investment, and it continues to grow exponentially annually. If you are a beginner looking to trade in currency, you need to understand the basics of currency trading.
Here is all you need to know about the currency trading basics.
If you already have an online trading account with any stockbroker, then you do not need to have a separate account for trading in currency. Any trader can sell or buy currency pairs in the NSE and BSE currency trading sections. The products that you can trade in these markets include usd inr trading pair options, rupee pair futures, cross-currency pair options, and cross-currency pair futures.
Unlike equity shares, you do not need to have a demat account to trade in currencies as currency trading takes place based on contracts, and there is no creation of ownership.
Currency is traded in India, preferably in the form of futures and options contracts. The currency futures is a futures contract to exchange one currency with another at a predetermined date and a pre-decided price (exchange rate) in the future.
In the currency derivatives section of the BSE and NSE, the price of the currency futures contract is expressed as INR per unit of the other currency that is being traded. For example, USD-INR futures contract is generally expressed in the form of rupees per one US dollar (for instance, 71/$). In this contract, the dollar is called the principal currency, and the Indian rupee is the secondary currency. A similar logic is applicable for other currencies as well, like the Japanese Yen, the UK pound, and Euro.
All currency trading is done in pairs, unlike the stock market, where you can buy and sell a single stock; you have to purchase one and sell the other currency in the stock market. The currency pairs traded in the Indian currency market are EUR-USD, USD-JPY, and GBP-USD. The market works according to the demand and supply of the currency.
If you want to begin currency trading in India, below are the steps you need to follow:
There are some important things to remember when you are trading in currencies:
Thus, these are the currency trading basics that you need to understand. Before you start trading, understand that every trade carries risks, and there might be times when you lose money. So, define your risk portfolio, understand your style of trading, and choose the right broker. Happy trading!