The foreign exchange (FOREX) market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume, it is the largest market followed by Stock Trading (source: Wikipedia)
Forex trading has always been a risky approach due to its ever fluctuations. In India, we have four currency pairs, USD-INR, EUR-INR, JPY-INR, and GBP-INR. Other currency pairs such as EUR-USD are not allowed in India. In India currency future and currency options are available for trading and investing.
Why trade in currency?
Business houses are involved in import and export activities to trade in the currency market for safeguarding their business. An Exporter or an Importer generally faces a risk of currency fluctuation in their business. Based on the rupee appreciating or depreciating, the exporter makes loss or profit on currency conversion. To safeguard these losses, generally, an exporter sells the currency equal to the contract value of export. So in case, they make a loss during the actual conversion (once they receive the payment), they gain from the sale made from currency pair. So ideally a 1000 dollar takes around 2000 INR margin money instead of 70,000 INR. It’s like term insurance. You are safeguarding your 1000 USD payment with 2000 INR.
I am no Exporter! What’s in it for me?
Retail traders can buy and sell currency pairs in the future market by using a Demat account. Most of the stockbrokers allow trading in currency. The Currency market opens at 9 AM and Closes at 5 PM. Traders need to buy currency pairs in lots ( 1 lot = 1000 USDINR).
Generally, the movement of currency is very low and range bound. But a movement of 0.01 INR gives you 100 INR profit in a 10 lot investment and the investment amount is approx. 20,000 INR. Once currency touches the lower band and starts moving up, a trader can buy and when the currency reaches the upper band and then reverses he can sell. This is simple mathematics and once a trader identifies the swing up and down points he can enter the trade accordingly. It is simple and a risk-free to trade. So in 1 lakh INR investment trader can buy around 50 lots of USD and in a movement of 0.50 INR, he makes a profit of 25,000 INR.
Is there any special pattern in currency?
Buy Currency whenever there are any global events such as trade wars or trade tensions between currencies
Sell currency whenever there is an event that favors Indian businesses where the economy gets strengthened
Global impact does not change overnight so the investor can safely do trading during those periods. Currency provides one or two opportunities every month to trade. Any trend develops because of the global event stays a couple of days.
Hence you can enjoy a risk-free earning in currency.
About The Author
Founder Director at GenYAnalytica Solutions Private Limited.
A Data Science Management consultant with over 23 years of experience in finance domain. He builds and implements Artificial Intelligent Tools in the areas of Stock Trading, Commodities, Forex, etc., He also provides training on
- Technical Analysis of the stock market
- Trading and Investment using Technical Indicator and Machine learning.
- Quantitative Analytics using statistical model
- Portfolio Management
- Risk Management and Risk Optimization
- Algorithmic Trading and Trading System building
- Hedge fund management