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FOREX TRADING

Forex is a short term to denote Foreign Exchange. Forex trading is nothing but Currency Trading. Governments, banks, financial institutions involve actively in Forex trading. Now, even individuals can do FX (Forex ) Trading in on-line. In India, large volumes of FX trading is done between USD (US Dollars) and INR (Indian Rupee). Unlike Stock Markets where shares are traded for limited hours of the day, currency is traded for longer duration of the day as many countries are involved. The USD Vs INR rate varies according the market conditions. If Forex reserve builds-up (like FIIs buying stocks in Stock Exchanges), INR appreciates against USD. Similarly, if there is a huge out flow in the Capital market, forex reserves deplete and the USD value goes up. This demand / supply gap helps traders to make money. The FX market is tightly coupled with global economic conditions. FX market does not depend on any function of individual company, it is purely operated on the economic strength of the country where the currency is traded.

Individuals must open a FX trading account with reputed brokering companies within the country as per the guidelines of the respective central banks. There may be some limits on the amount that can be traded by an individual. Minimum lot is $1000, so around Rs.50000 may be required to start FX trading. In India, we can say that still FX trading for individuals is in nascent stage. Individuals enter into contracts to buy or sell the underlying currency, at a fixed price, at a future date. The contract is derivative of the currency market. As of now, in India, NSE, MCX-SX and CDX (currency derivative segment of the BSE) trading terminals provide access to trade currencies.

There are many scam Forex Trading sites which operate just to swindle money from naïve investors who simply believe and transfer their hard earned money only to find out that they have been cheated. It may be impossible to get back the money as the scam companies wind up and vanish quickly. It is advisable to consult your own financial broker and take the necessary steps, if you want to do currency trading.

Individuals who are interested in FX trading can try out FX trading software that simulates currency trading. One can educate himself thoroughly by carrying out fake FX trades without putting any money into the FX market.

Risk Vs. Reward factor is very in FX trading, Few cents variation in the USD can make a big change in INR due to large volume. FX trading is not suitable for small retail investors as their risk appetite is generally very low. Assuming that Re. value is 50 at the time of buying, and if one buys USD for Rs.500000 = USD 10000. If the USD slides by Re.0.50, the individual will lose Rs.5000 if he sells at that time.

FX markets operate on popular currencies like Singapore Dollar, Australian Dollar, Swiss Franc, British Pound Sterling, Yen of Japan and the Euro apart from USD.

Currency trading is immensely useful to exporters. It allows them to do hedging there by minimizing or eliminating the loss in case of heavy fluctuation in the values of foreign exchange.