People are already familiar with the stock and equity markets in India. However, the currency market in India is still a subject of confusion. Since forex trading can offer lucrative returns, getting to know the essentials of the currency market in India is vital. So here are the 5 essential elements that you must know before jumping into the currency market in India.
1) Is Currency Trading Legal In India?
Since the Reserve Bank of India employs various restrictions on currency trading, people might assume forex trading to be illegal. However, that's not the case. People can trade forex pairs involving Indian rupees as a base or quote currency. In addition, the RBI has also allowed traders to add three cross-currency pairs to the list of permitted tradable assets, including EURUSD, GBPUSD, and USDJPY.
2) Types of Currency Markets In India
Primarily, there are two types of currency markets in India, including spot and futures markets. The spot market is also sometimes called the spot market. Considering the prevailing restrictions on currency trading in India and the limited profit potential in trading currency derivatives, Indian clients prefer staking their interest in the futures market.
3) What Moves the Currency Market In India?
The prices of currencies fluctuate due to many geopolitical factors. However, Central banks can also move the forex market employing different tools, including settings in the exchange regime, monetary policy tools, and currency interventions. RBI also intervenes in the currency market as and when needed to protect the Indian Rupee from deflation.
4) Who To Register With To Start Currency Trading In India?
The Securities and Exchange Board of India (SEBI) regulates the intermediaries dealing in the currency market in India. Clients need to sign up with a SEBI-regulated broker to start trading currencies. Not to mention, signing up with an online broker is a criminal offence in India. You could either face hefty financial penalties or imprisonment if found guilty. Therefore, make sure that your prospective broker holds a valid license from SEBI.
5) How Can You Trade In The Currency Market In India?
Once you have registered with a SEBI-regulated forex broker and have deposited some funds in your account, then trading the currency market is not an issue. You can employ various trading strategies to trade successfully. A few of them are listed.
Day Trading: Day trading means opening and closing of positions on the same day. It is one of the most popular trading strategies amongst traders. However, it also needs you to be well versed with the currency market and have sound trading knowledge. Therefore, opening a demo account would be a wise idea before staking your real funds in the market if you are new to trading.
Scalping: Scalping is another popular trading methodology for short-term traders since it enables you to make profits even on minor market moves. However, scalping might not be available with all brokers. So you need to ensure if your broker allows you to scalp or not.
Position trading: This trading strategy deals with holding a long-term position. Traders can make lucrative returns with position trading once the market undergoes significant moves.
Although forex trading is becoming increasingly popular worldwide, the currency market of India is yet to evolve. The central government of India seems to be taking initiatives to provide more relaxation to potential traders and financial intermediaries.
Undoubtedly, the Indian currency market has a lot of potentials to offer lucrative returns. However, the RBI restrictions appear to be the barrier that prevents traders from exploring more opportunities.