The term ‘Forex Trading’ means trading of the foreign currency. The Dollar is one of the most popular foreign currency in India. The current value of Dollar is ₹71, and it has been continuously rising. Currency trading is for those investors who want to take benefit from the appreciation rate in the short and medium-term.
There are many doubts regarding whether Forex Trading is legal in India. Well, let’s clear this ambiguity once for all. It is permissible to trade foreign currencies in the Indian Exchanges like BSE, MCX-SX, NSE. According to the RBI guideline, all the residents of India, including financial institutions and banks, are eligible to participate in forex trading in currency pairs. The prominent currency pairs in India are USDINR, GBPINR, EURINR, and JPYINR. Therefore, if you are connecting with forex broker in India who have authorized memberships in the above-mentioned exchange, then your forex trading is perfectly legit.
How Forex Trading Works?
Forex trading resembles equity trading in numerous aspects. Just like share is the crucial player in equity, for forex trading, the exchange rate plays the role. It entirely depends on you when you want to buy or sell currency pairs based on your estimation of movement in currencies. Here are a few examples which will help you to develop a better understanding –
- Suppose you see a trend where you predict that Dollar is on the rise, and you want to benefit from this growing rate of the Dollar. Now the current price of Dollar is ₹71, based on what is happening in the market; you estimate that the price will rise and reach around ₹74 in the next few months. By buying the USDINR contract on the exchange for ‘long close,’ you will receive a profit of ₹3 per Dollar. Hence, a single deal of $1000, will help you reap the benefit of ₹3000.
- Now suppose after entering the contract, luck doesn’t favor you, and you witness Rupee is rising and dollar sets at ₹73. Now, in such cases, it is advisable to sell the currency future contract through ‘short close.’ Here, what will happen is, as the dollar price reaches ₹73, you will gain ₹1 per Dollar by squaring off your position, and in total, you gain ₹1000 on the $1000 contract. However, if the bet doesn’t pay off and Dollar moves up to, say, ₹77, this will result in loss of ₹2 per Dollar.
- The above steps can be taken for GBPINR, EURINR, or JPYINR. It would help if you always remembered that being an investor, you can square off position at any required time during the period of the contract.
Brokers for Forex Trading
There are several registered brokers through whom you can do Forex Trading. Some of them even provide a forex demo account for beginners where you can see how foreign exchange works.
MCX-SX or Multi Commodity Exchange is the most commonly used exchange, along with the NSE – National Stock Exchange. COMEX is used as a regulator at the international level exchange. RBI and SEBI are the regulators for the Indian currency market. Here are some of the best brokers who offer Forex Trading services in India –
- SBI FX Trade
- Nord FX
- Forex Time
Forex Trading or Currency Trading is Risky and Not for Everyone
It is imperative to understand that Forex trading, like other markets, involves risks and, at times, might result in loss. Therefore, it’s not suited to everyone. Hence, in order to be a good forex investor, you must be aware of your best investment objectives, risk-bearing capacity as well as experience!