How to Trade in the USD/INR Currency Pair | Motilal Oswal

How to Trade in the USD/INR Currency Pair




Introduction

USD/INR are currency pairs that trade in the Over-the-Counter forex market. Trading in USD/INR means exchanging USD for INR in the open market. Forex markets are open 24 hours a day, 5 days a week, and are dominated by institutional or qualified investors, who have been accredited by the regulators to have a certain amount of risk-bearing capacity. 

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How do investors trade in USD/INR pairs?

The first step is to have a working knowledge of forex trading so that you understand the risk and return and do not indulge in picking trades that may lead to a loss of your capital. Let's understand the basic mechanism of a USD/INR trade: 

Let's say, the USD/INR pair on Day 1 is trading at an average price of INR 81.3. An analyst, after reviewing the technical charts and other macro variables, realizes that there is a high chance of the Rupee depreciating against the dollar. Therefore, to make a profit off of this projection, the analyst will recommend buying the USD/INR pair.

Now, let's say you are a big ticket trader who chose to pick trades in line with the analyst's forecast, therefore, you purchased the USD/INR currency pair for a total of 1 crore rupees, giving you 1,00,00,000/81.3 = 1,23,000 (approximate) units of USD. Now, as per the forecast, the INR depreciates, and the price of the USD/INR pair on Day 2 is INR 81.45, In this case, you realize your profits and square off the position, making a total profit of 1,23,000* (81.45-81.3) = INR 18,450 in a single day.

What is Forex Volatility and Liquidity?

  • Volatility: Volatility refers to the degree of variation or fluctuations in the price or value of a currency pair over a specific period.
  • Liquidity: Liquidity refers to the ease with which a currency pair can be converted into cash without significantly affecting its price.

Volatility and liquidity share an interdependent relationship. Lower liquidity often leads to a more volatile market, causing significant price fluctuations. On the other hand, higher liquidity usually results in a less volatile market, where prices show less drastic fluctuations.

Conclusion

In conclusion, trading USD/INR currency pairs in the forex market can be a lucrative endeavor for investors. By mastering the basics of forex trading and managing the risks effectively, traders can trade with confidence even in volatile markets. 

 

Related Articles: Tick Size in Trading: Understanding the Smallest Price Movements What is the Schaff Trend Cycle and Its Benefits | What is Slippage and Its BenefitsUltimate Guide to Positional Trading

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