Many don 't like to part with their hard-earned money for the sake of earning more capital. But then there are those who not only invest their monies in stocks and bonds and mutual funds, but also trade in currencies. This is called currency trading, and it is gaining popularity amongst traders and investors in India. After all, globally, the currency trading market is sizably bigger than stock and commodity combined. More than U.S. $4 trillion in currencies change hands every single day in a highly professional interbank market comprising of electronic trading platforms. Currency traders from banks across the world use these platforms to stay connected, to execute currency trading, thereby influence foreign exchange rates.
 
Currency trading in India
In the realm of currency trading in India, we can trade only those currencies that are benchmarked against INR. Also, we can 't trade in foreign currency from India. So, RBI allows investors to trade in the following INR currency pairs:
  • USDINR
  • EURINR
  • GBPINR
  • JPYINR
It 's legal to trade with Indian brokers who trade on exchanges like NSE, BSE, MCX-SX, because they provide access to currency derivatives. There are times when Indians can 't trade in EUR/USD or YEN/USD because the RBI loses a lot of dollars when an Indian in the country loses currency on trading with out of India players. After all, on losing, an investor must buy more dollars, which in return results in increase in current account deficit.
 
Currency trading is gathering steam in India
As opposed to how only financial institutions and corporates could engage in currency trading in the past, today even individuals and small-scale investors can participate. With the advent of better and secure web technologies, a lot of information on foreign exchange is now available to individuals, thus giving them time to speculate and make investments, oftentimes free of cost.
 
Even if currency trading in India is not risk free, Currency Derivatives are very efficient in managing risks and offer a couple of benefits:

  • 24-hour trading: There is no waiting for the opening bell. Since the forex market is worldwide, currency trading goes on as long as there is market open in any corner of the world.
  • Hedging: if you are an importer, and have payments to make in USD at a future date, you can hedge your foreign exchange exposure by purchasing USDINR and fixing your pay out rate today. Obviously you would hedge only if you were of the view that USDINR was going to depreciate.
  • Speculation: If you are expecting a rise in oil prices that would impact India 's import bill, you should ideally buy USDINR in expectation that the INR would depreciate. Alternatively, if you were expecting stronger exports from a particular sector, combined with strong FII flows, you would sell USDINR.
  • Arbitrage: Look at making profits by taking advantage of the exchange rates of the currency in different markets and exchanges.
  • Leverage: Forex brokers will allow you to trade the market using leverage, which is the ability to trade more money on the market than what is actually in your account. Let 's say, if you were to trade at 10:1 leverage, you could trade INR 10 for every INR 1 that 's in your account. This means you could control a trade of INR 100,000 using only INR 10,000.
The other side of the coin
At large, forex or currency trading can be daunting for small investors. Those who engage in it with the help of uninformed brokers often find themselves making loses. Besides this, currency trading has its share of myths that are as following:

  • Forex trading makes money easily: no, there 's unlikely any chance of you turning a millionaire overnight with currency trading
  • Forex trading guarantees returns without efforts: no pain, no gain. An effort made in understanding the markets is one of the major decisive factors for successful currency trading.
  • Brokers offering the highest leverage on your margin money are the best
So as you can fathom, currency trading is extremely pain staking, but if done correctly, rewarding. Ensure that your research on the subject matter is thorough before engaging in currency trading. Keep yourself abreast with the latest in forex independently, or with the help of a qualified broker. After all, knowledge about the market also reduces the chances of you being duped into trading at the wrong time.