Currency Trading Basics: All You Need to know | Espresso

Basics of Currency Trading

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.

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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.

How Currency Trading Works?

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 Trading in India

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.

What Steps are Required to Start Currency Trading?

If you want to begin currency trading in India, below are the steps you need to follow:

  • Open a currency trading account with any online broker, as per your preference.
  • Fulfil the Know Your Customer (KYC) details and norms.
  • Deposit the needed margin amount.
  • Access your credentials and start trading.

Things to Remember When Trading in Currency

There are some important things to remember when you are trading in currencies:

  • Understand your style of trading: Every trader has a unique style and risk-taking capacity. It is important that you understand your trading strategy and forex risk profile before you start trading in currency.
  • Choose the broker carefully: Before you choose a broker, ensure that you will get the help that you need. Moreover, research about the broker so that you can be sure that they are the right one for your needs.
  • Understand your limits: Even before you start trading, understanding and deciding your entry and exit points in the trade is essential. There is no trade that promises profits, so when you see that the situation might be unfavourable, exiting might be the best option. Keep yourself updated regarding the different scenarios so that you can limit your losses.
    Also Read: Benefits of Curreny Trading

Conclusion

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!

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Frequently Asked Questions

Currency trading refers to buying and selling of different currencies. The participants involved in currency trading include banks, investment firms, retail forex brokers, investors, and hedge funds.

Like any other investment market, currency trading also carries a risk of loss. Because you are dealing with a pair of currencies, the variable can be high. But, there is also a chance of making good profits. Therefore, it is important to understand the market before you invest. Also, trading using borrowed funds is not recommended.

There are two types of currency markets. The first one is the cash market or spot market, and the other one is the futures market, where you can trade in currency futures. In the Indian currency market, currency futures are a preferred method of trading in currencies.