Portfolio diversification is one of the key goals of most investors. Through portfolio diversification, you can minimise the chances of a loss. When you invest in multiple asset classes, you have greater chances of making a profit. One of the securities that help with portfolio diversification is currency.
Did you know that people used the barter system to exchange currencies in the past? At present, there are dedicated financial markets for currency trading. Before stepping into the field of currencies, you must know some basic rules. Read on to understand how to succeed while trading currencies in India.
Demystifying Currency Trading in India
Trading of currencies is a little different than that of other financial securities in India. For example, you can buy shares or bonds on a stock exchange and store them in a Demat account. On the other hand, you will access the Forex (Foreign Exchange) market for trading currencies in India. It is a special market designed for trading currencies in pairs. The value of one currency in the pair is expressed in terms of another currency. For example, assume you are trading the pair of EUR/INR in the Forex market. In the following pair, EUR is the base currency, whereas INR is the quote currency. Forex market will display the exchange rate between the currencies, which is the amount of quote currency required to buy a unit of base currency.
You will need a trading account specially designed for buying and selling currencies in the Forex market. The Forex market is categorised into different sessions, which are Sydney, London, Tokyo, and New York session. The timings for currency trading will differ for each session of the Forex market. For Indian traders, the focused currency pairs in the Forex market are USD/INR, EUR/INR, GBP/INR, and JPY/INR. When you buy these currency pairs, you are buying a contract. The contract determines a fixed date and price in the future to sell the currency. Spot, forward, futures, and options contracts are available in the Forex market for investors.
Besides the Forex market, you can rely on stock exchanges for buying or selling currencies. However, stock exchanges offer currency derivatives, which can be options, futures, and ETFs (Exchange Traded Funds). Similar to the Forex market, currency contracts available on stock exchanges also include a fixed time and price for selling the currency in the future. Even though currency derivatives are available on stock exchanges in India, the bulk of currencies are available in the Forex market. You can start to trade currency in India by having a specialised trading account to access the Forex market. A trusted stock broker like Religare Broking can help you access the Forex market with a specialised trading account.
How to Succeed as a Currency Trader in India?
Even though you are an expert in equity trading, there is no guarantee of success in the Forex market. However, you can become a successful currency trader by following the right practices, such as:
- The first step is to understand the basic terminology used in the Forex market. You must know the meaning of terms like pairs, pip, base currency, quote currency, spread, lot size, and leverage.
- Understand your risk tolerance level before investing in the Forex market. Then, you can trade currency in India depending on your risk profile and avoid unnecessary losses.
- You must choose a reliable broker for trading currencies in India. The right broker will help you with currency research services via its trading platform. You must also consider the brokerage charges of the stockbroker before investing in currencies.
- To understand the game, you can start with paper or virtual trading in the Forex market. Once you gain experience, you can invest real money in the Forex market.
In a Nutshell
Currency trading can help you diversify your portfolio and build wealth. However, you must know the Forex market basics, including the best trading strategies. You can choose Religare Broking as your broker to succeed in the Forex market. Start trading currencies and earn returns now!
Read More :- A Quick Guide to Open a Trading Account in India for NRIs