What is Forex Trading:
First, it is important to understand about Forex market. Forex or foreign exchange market is a type of market where one currency is traded for another Currency. It is one of the most actively traded exchange Market in the world. The volume is huge that they are higher than the combined transaction in the stock market around the world.
The forex market has a global reach where buyers and sellers from all over the world come together to trade. These traders transfer money between each other at an agreed price. When someone travels abroad, they buy some foreign currency. This is basically a forex transaction.
In the same way, when a company needs to buy goods and services from foreign countries it will Required foreign Currencies for that. For example, an Indian Company is buying products from the United States. It means the Indian Company has to pay the supplier of the product in US dollars. It means the company has to exchange the equivalent amount of rupees to US dollars to make the purchase.
How Does Forex Trading Works:
Now that we have understood the basics of forex trading, now we will see why it's done on a large scale. The main reason is speculation. Forex Trading is done to earn profit from the changes in the value of a Currency. A currency value is kept changes because of various political and economical factors. Like, inflation, balance of payment, and interest rate changes. These movements attract the Traders who hope profit from getting their prediction right. However, with a higher chance of profit, comes higher risk.
Like stock, there is no fixed market for Forex Trading. The transaction takes place using a computer network between Traders all over the world. Currencies are traded in major financial centers like London, Paris, New York, Japan, and so on. So when one market closes, another opens. That's why the Forex market is active almost any time of the day or night.
The price of the one Currency is compared with another Currency. The first Currency in the pair is known as the base currency and the second is called quote currency. For example, The USD/INR pair gives information to traders on how many Indian Rupees are needed to purchase one US Dollar (Base Currency). For example, the USD/INR pair on a certain date may be ₹70.52. the base Currency is always indicated as one unit, any Currency can be the base currency in the Forex Trading.
Types of Forex Market:
Different Types of Forex Market, Basic Tips For Forex Trading, Beginner Tips For Forex Trading
Now you understand how Forex trading works. It's important to understand the different types of Forex Market in which to do Forex Trading:
Spot Market:
In the spot, market Currencies are bought and sold at the current price. The price of the Currency is based on demand and supply like any other Commodities. Currency prices are also affected by other factors like political situation, state of the economy and the interest rate, and so on. In the spot market, one trader delivers to another trader a specified amount of Particular Currency. In exchange, he receives a specified amount of another currency from the other trader, at an agreed exchange rate.
Forward Market:
In forwarding Forex Market Two traders enter into a contract to buy or sell a certain quantity of a currency at a specific price at a certain date.
Future Market:
Currency future is a contract to buy or sell a Particular Currency at a fixed price at a future date. Forex Trading is regulated by RBI (Reserve Bank of India) and SEBI ( Securities and Exchange Board Of India). Clearance and settlement are taken care of by the Exchanges.
Forex Trading In India:
Now we have understood the Basic of Forex Trading. Now we will talk about How to do Forex Trading In India.
In India, both BSE and NSE offer to Trade in Currency future and Option. USD/INR is the most commonly traded pair. If you are a trader who wants to take a position in the Currency movement, you can trade in currency future. For example, a trader expects that the US Dollars in rising against the Indian Rupees shortly, then he buys USD/INR future. On the other hand, if the trader expects that the Indian Rupees are falling against the US Dollar, he sells USD/INR future.
Before Trading in Forex Market, you need to understand that Forex Trading is not for everyone It comes with a high level of risk. It is essential to have the required level of knowledge and experience before trading in forex. You should know that it is good of losing money at least initially.
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