Tuesday, November 17, 2015

Currency trading (Forex)




An Indroduction to Currency/Forex trading
     Many traders are participating in various kind of tradings. Most of them are certainly looking ahead to get rich quickly. Nowadays, the trading facility is available in various products like share, commodity, currency...etc. All these, of course, are risk oriented. Selecting a less risky product and investing in it is comparatively safe.  It is here the relevance of currency trading araises.
     Globally, major segment of the trading is being executed in currency sector.
It is very easy to buy and sell in forex and that is why it has high liquidity rate.  The market is remaining open for 24 hours every day except weekends. Like any other methods, currency trading is also not completely free from the chance of loss. But there is more chance to make profit, utilising small variations with less expense rates.

     Indian currency trading started its operation in 2008 and in 2010 it entered to option market. This facility is available in National Stock Exchange (NSE) and in Multi Comodity Exchange. One can begin the trading through the brokers who have membership in it. The trading can be performed via mobile phone or internet.

Four currencies
     We can choose two different currencies as a pair for the purpose of trading. Here, with Indian rupee (INR), four currencies are allowed to trade. US Dollar (USD_INR), Euro (EUR_INR), Japanese Yen (JPY_INR) and Great Briton Pound (GBP_INR) are the allowed ones.  Not only individuals but also many high profile institutions have been participating in the currency trading.  Banks, central bank, financial institutions, Government, small scale investors and even speculators are actively participating in currency trading. Any basic economic factors like economic growth of the country, inflation, variations in interest rate, budget, financial deficit... etc, may affect the value of currencies. The rate of each pair of currencies may be changed on due to any of the above mentioned factors. Monitizing these fluctuation is all about the Currency trading.

     Some basic matters to be learned before starting the trade. Let us take the example of USD_INR.  This pair is sold or bought as 'Lots' .  One lot is estimated as 1000 US Dollar. The value of one USD against INR is also to be understood and kept in mind while trading. Minimum fluctuation in this pair is Rs 0.0025, ie 0.25 paisa.

     If the value of INR is expected to be falling down, that means the USD is going to become stronger, the trader should buy USD_INR. And when INR is expected to become stronger, the trader should sell the USD_INR.

     When the value of INR increased by 1 paisa (Rs 0.01) after a trader bought it, his profit is Rs 10.
(1000 x Rs 0.01 = Rs 10).
If it increased by 50 paisa, his profit is Rs 500.

      The value of one lot will be approximately Rs 66,000 as per today's rate. A trader can buy one lot if he pays 5% of this amount as margin. That means only Rs 3300 is needed to buy one lot USD_INR.

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