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5 Things to Know About Currency Trading in India

05 Jan 2023

Indians are more than familiar with the equity and stock markets in India. Nonetheless, the market of currencies in the country seems confusing to many Indians. Since forex online trading offers some lucrative gains, being aware of the essentials of the Indian currency markets is crucial. Before you dive into any kind of investing, you have to get to know the ropes. 


Just as you first try your hand at share market trading, with patience in your ways till you learn about the markets well, so you may tread with care in the currency markets in the initial stages of trading. Due to the fact of currency being the main variable to trade in, you may get anxious at first. You may learn more from your experiences than any textbooks can teach you, but there are some basic elements of the markets related to various assets that can help you start your investment adventure. Currency trading in India isn’t as rampant as it is everywhere else on the planet, and there are five fundamentals you should consider. 


1. Is it Legal to Trade Currencies in India? 


Forex online trading, unlike any other asset investing, has not received much encouragement in India. The Reserve Bank of India places a range of restrictions on trading in currencies, and this is the main reason that investors stay away from currency trading. They find traditional trading in equities, in which you start when you open a demat account, simple to grasp and easier to execute. However, currency trading in India is not as challenging as it may first appear. The Reserve Bank of India has made it possible to trade in the market of Forex with the condition that the Indian Rupee be used as the base currency in all trading. Additionally, the Reserve Bank of India also permits traders to add 3 cross-currency pairs to the allowed list of assets which may be traded, including GBP-USD, EUR-USD, and USD-JPY. 


2. Know the Currency Market Types in India


You may not have to open a demat account to trade in currencies in India. However, you do need a Forex trading account and perhaps a bank account that is linked to it. Once you have this in place, you can trade in primarily two kinds of currency markets. These include spot markets and futures markets. Due to the fact there are certain limitations on currency transactions in India, with derivatives in trading currencies offering little in the way of returns, investors prefer to stake their interests in futures markets. 


3. What Drives Indian Currency Markets?


Forex online trading is not for the faint of heart. You must be aware of risks involved as fluctuations and states of economic conditions can affect currencies on a global scale. Currency prices fluctuate as a result of several geopolitical factors and conditions. Nonetheless, central banks have a tendency to move Forex markets. Central banks employ a range of tools while doing this, including tools that impact monetary policies, changing settings in the regime of exchanges, and intervention in currencies. The Reserve Bank of India is India’s central bank and it has a vital role to play in the intervention of currency markets. It does this as and when the need arises and thereby safeguards the Indian Rupee from any deflation. 

4. How To Sign Up for Indian Currency Trading


SEBI, or the Securities and Exchange Board of India, is responsible for the regulation of the intermediaries that deal with the Indian currency market. Anyone who wishes to trade in currencies must register with a broker who is authorised for regulation by SEBI. Brokers who have the authority to trade in currency by SEBI must hold a valid licence issued by SEBI. 


5. How to Trade in the Indian Currency Market


Once you successfully register yourself with a Forex broker who is regulated by SEBI, and you have made deposits of funds in your account, then you can begin trading in the currency market using Forex online trading platforms provided by your broker. There are many trading strategies you are able to employ to make your trading a success. Nevertheless, in whatever asset you plan to trade in, it is best to make small trades at first, especially in markets like the currency market, which are still nascent in India. 


Ways to Trade Forex in Brief 

The following trading strategies are commonly employed while trading in the currency market:

  • Day Trading - This means that you trade by opening your positions and closing them within the same day. A popular strategy in the currency market, this requires traders and investors to be well-versed with markets. It's wise to begin with a simulator for practice. 
  • Position Trading - Such trading is generally rewarding as it allows investors to hold positions for long periods. Traders get lucrative gains, as the currency markets are prone to undergo shifts in the long run. 
  • Scalping - You may have had to open a demat account to trade with stocks and tried scalping as a trading strategy. This is a popular trading method for currency trading too. If you are trading for returns in the short run, you can make profits out of minor market shifts. 


Riches May Await You

On a worldwide front, Forex trading is fast gaining steam. However, the market of currency in India is still an emerging one, evolving very gradually. The Indian government, although taking slow and sure steps to relax norms for currency trading and financial intermediaries, is acting with extreme caution in this area. Nonetheless, the central government, besides every seasoned trader, has realised that the potential to trade in currency is promising to say the least. 


If you feel that you wish to spread out your investments for a diversified portfolio allocation, you can always open a demat account and begin with stock trading first.  The trick is to  begin in a small way, and get more experience till you are confident enough to invest large amounts and know how the market works. You can also explore any upcoming IPO investment as this is becoming a sought-after investment channel too. 

Related Articles: Similarities and Differences Between Crypto and Forex Online Trading | 6 Things to consider before trading in Forex | What Are Cross Currency Pairs And What Do They Mean | 10 Main Benefits of Forex/Currency Trading | How Currency Fluctuations Impact your Financial Plan | Upcoming IPO

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