The forex market is the largest and most liquid financial market globally with a daily turnover of about $6.6 trillion. In terms of market size, it is worth $2.409 quadrillion. In a typical forex market, the principal activity is that of buying and selling currencies -bundled in pairs.
With a 24-hour operating cycle, the forex market plays a critical role in providing currency to settle international trade transactions. For instance, if India wants to import palm oil from Malaysia or Indonesia, importers will have to obtain the Malaysian ringgit or Indonesian rupiah from the forex market. Banks usually facilitate many of these transactions.
Apart from institutions, individuals can also participate in the forex market. To trade in the forex market in India, you’ll have to sign up for a trading account with a broker that has an international reach. You must also get your forex market timings India right so that you don’t miss out on trading opportunities. Read on to understand forex trading in India, and the things you should know as a new trader including market timings.
Understanding Forex Trading in India
Forex trading in India is restricted and not entirely legal. Driven by the need to guard the integrity of the Indian Rupee, the Reserve Bank of India introduced a raft of measures through a 2013 circular. For instance, forex traders in the country can only trade in currency pairs where the base currency is the Indian Rupee (INR).
There are only four tradeable currency pairs where the INR is the base currency -the INR/EUR), INR/JPY, INR/GBP, and the INR/USD. Thanks to a few other market reforms, exchanges in India now offer exchange-traded currency options and cross-currency futures contracts in EUR-USD, GBP-USD, and USD-JPY.
Having addressed the legality of forex trading in India, it is also important for you to understand as well how you can participate as retail forex trader.
How To Become a Forex Trader in India?
First things first, you need to familiarize yourself with how the forex market is organized. In India as anywhere else, the forex market is divided into interbank forex market community and the retail forex market. The interbank forex market brings together banks and other institutions that generally trade in high volumes. On the other hand, the retail forex market is where individual traders buy and sell currency pairs.
Here is a snapshot of the different types of forex markets to expect in India
- Spot market: Spot market transactions are settled immediately. There is no part of the transaction that is carried over or deferred.
- Futures FX market: In this market, participants enter into standardized contractual agreements to trade currency pairs at specified dates and value.
- Foreign currency swap: This arrangement involves two parties exchanging (swapping) currencies at the spot rate, but with settlement happening in future. The transaction involves a forward contract.
To begin actively trading, here is a step-by-step guide.
Get a Forex Broker
Choose a reputable broker with an excellent trading platform and an international reach. The broker should allow you to buy and sell INR currency pairs. On the part of regulation, the broker you settle for, must be regulated by bodies such as Financial Industry Regulatory Authority (FINRA) and Securities Exchange Commission (SEC).
Sign Up for An Account
Most brokers will allow you to sign up for a trading account of your choice straight from their website. Check for any minimum deposit requirements and other account related prerequisites as you set up the account.
Once you’ve set up your account, transfer funds to begin trading. Thanks to the many funding options brokers have, you’ll most certainly find one that works for you. It could be credit card, debit card, bank transfer, or even PayPal.
Download a forex trading platform
Using your smartphone or computer, download the forex trading platform, customize it, and start looking for trading opportunities. You may want to begin with a demo account especially if you are new to trading.
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Forex Market Timings in India
Successful trading also requires that you get the market timings right. First, it’s important you understand that your trading will be concentrated in certain centers. The global forex trading sessions are:
- Oceania-Asia Session
- Europe Session
- Americas Session
The market is open 24 hours daily from Monday to Friday. You can set your position, monitor it, and take profit whenever the market moves in your favor. However, because of time differences you may have to let some opportunities go but there will be plenty for the taking.
The forex market in India, much like in the other markets, is highly liquid and gives traders opportunities to take profitable positions. At whatever time you want to trade, you can enter the market and look for an active session and take a position. Ensure you identify your trading limits to know when to enter and exit a trade.