Trading in foreign currency is known as Forex Trading. You might have noticed that the value of the dollar is going up every day. Dollar exchange rate was Rs. 62 before few days and now it is Rs.64. Investors willing to take advantage of this appreciation in short and medium term can participate in currency trading.
Yes, it is legally allowed to trade Forex within Indian Exchanges like BSE, NSE, MCX-SX. As per RBI guideline, all Indian resident including banks and financial institutions can do forex trading in currency pairs. The main currency pairs are USDINR, EURINR, GBPINR and JPYINR. So, if you are trading with brokers who have membership in mention exchange it is absolutely legal.
How Forex Trading Works?
Forex Trading is same as that of equity trading. In equity trading rate of share matters while in forex trading exchange rate matters. You can buy or sell currency pair as per your expectation of movement in currencies. Please refer to the example given below for better understanding.
Example –
- Suppose you want to take advantage of growing price of a dollar. The dollar is trading at Rs 64, you feel that price is going to appreciate and expected to reach at Rs 67 in few months you can enter into a long position by buying USDINR contract on the exchange. If the price goes to Rs 67, you get the profit of Rs.3 per dollar. So in the single contract of 1000$ you can earn Rs.3000.
- After entering into the contract if you see that Rupee is appreciating and dollar price is expected at Rs 63, you can ‘short close’ your position by selling currency future contract. If dollar price goes to Rs 63 you can gain Rs 1 per dollar by squaring off your position. Total gain on a 1000$ contract will be Rs.1000. However, if a dollar moves up and reach Rs 67, you lose Rs 2 per dollar. An investor can square off position anytime during the period of the contract.
- You can take similar long and short position in EURINR, GBPINR or JYPINR.
Brokers for Forex Trading
Forex Trading can be done with register Indian brokers. Most commonly used exchanges are MCX-SX – Multi Commodity Exchange and NSE – National Stock Exchange. At the international level exchange, COMEX is used as regulators. The currency market is regulated by RBI and SEBI. Best Brokers offering Forex Trading services in India are –
- SBI FX Trade
- eToro
- LiteForex
- Nord FX
Forex Trading or Currency Trading is Risky and not for everyone
Trading in forex carries a high level of risk and it may not suits everyone. Before deciding to do forex you should consider your investment objectives, risk carrying capacity and level of experience.
If you have any queries related to Forex trading it is advisable to take advice from an independent financial advisor.