Forex (FX), also called currency trading or foreign exchange is a global marketplace, which is decentralized, and which is where all currencies of various countries are traded, sold and purchased. The forex market is the largest and one of the world’s largest and most fluid markets. With the average daily volume of trading of $5 trillion, the stock market in the world isn’t even near this. Simply put, trading in forex is buying or selling currencies. Suppose you’ve ever been to another country and made a forex transaction. For instance, you convert the rupees (INC) into euros during your journey to France. After that then, the currency exchange rates, which are based on the demand and supply at the moment, decide the number of euros you’ll receive in exchange for the rupees. Additionally, the exchange rate is highly liquid and is constantly changing. Understanding it is a complex process that requires expertise and an understanding of the trading system based on market forces. Let’s find out how to open forex account in India
Is Forex Trading In India Legal?
It is a fact that there is no way that an Indian citizen, as defined by SEBI and controlled by RBI, to limit the risk can engage in forex trading within the Indian Territory by using any online or electronic forex trading platform in any circumstance. RBI’s circular of 2013 forex trading on online or electronic platforms is now restricted. However, trading in forex is legally legal if you use specific foreign exchange platforms, and your base currency will be INR (Indian Rupees). In simple terms, there is no legal requirement to trade forex. Indian Government has restricted trade for Indian residents only to exchange currencies marked with a bench mark against the INR (Indian Rupee).
Suppose you are an Indian resident. In that case, so long as you’re trading through a specific Indian broker that has access to exchanges based in India like BSE, the NSE, BSE, MCX-SX and also gives access to currency derivatives, the transaction is legally legal. In the past, the only trading instruments offered were EURINR, GBPINR, JPYINR and USDINR. However, it was announced that the Reserve Bank of India further, in the period from December 10th, 2015, permitted exchanges to provide cross-currency futures contracts and exchange-traded currency alternatives with three additional currencies, including EUR-USD, GBPUSD, and USD-JPY.
At this point, it is imperative to mention that according to the Foreign Exchange Management Act (FEMA) 1999, or the FEMA Act, the person can be sentenced to prison or with an amount of money for trading in forex that is illegally conducted in India. However, note should be made of the that there is no restriction to NRIs to conduct forex transactions in India.
Define “Brokers” for Forex Trading
According to Investopedia According to Investopedia, brokers are the companies which provide traders with an access point to the world platform which allows them to buy or sell currencies from abroad. The transactions that occur in this market always involve two distinct currencies. This means that forex traders buy or sell the pair they are looking to trade. Retail forex brokers or currency trading brokers are professional terms associated with Forex traders. But, the majority of best broker in India, for forex, participate in a tiny part of the global market for foreign exchange. Retail currency traders rely on brokers to gain access to the 24/7 currency market to make speculation. The larger firms, such as investment banks also offer Forex broker services to institutional clients.
What is the Forex Trading work?
In contrast to commodities or shares, the forex market does not happen as exchanges but rather between two individuals directly specifically, through OTC (OTC) market. The OTC market is split into three types spot, forward, and futures markets for forex. The process of trading in forex involves selling one currency to buy another. That is why it is priced in pairs. In simple terms, the price of a currency pair is how much a piece of “base” value of the currency in relation about what is known as the “quote” currencies. The pair’s currency is identified in a three-letter format – composed of two letters referring to the region and the other representing the currency in itself.
For instance, GBP/USD is an exchange rate which involves purchasing the Great British pound and selling the US dollar. This explains the prefixes “P” for Pound and ‘D’ to represent Dollar.
Furthermore, currency pairs can be divided in the categories below:
- Major pairs Major pairs Highly traded. It is Seven (07) currencies which make up over more than 80% of all forex trading. EUR/USD, USD/JPY and GBP/USD.
- Minor pairs Minor pairs less often traded. They often have major currencies that are compared to each other , instead that of the US dollar. EUR/GBP is EUR or EUR/CHF. GBP/JPY is a variant.
- Extras A major currency compared to the one of the small or emerging economies GBP/MXN/USD EUR/CZK
There are a variety of ways that a person can trade forex while purchasing one currency and selling another one in the same transaction. With the increasing popularity of online trading, it is now possible to take advantage of the advantages of price movements by using derivatives like CFD (leveraged products that permit traders both private or institutional open positions for only one-third of the worth of the transaction) trading. Contrary to other products, CFD does not take ownership of the asset, instead taking as a stake the notion of “whether it will increase or decrease in value” This is similar to making predictions about the outcomes of a particular array of facts based on available information.
While leveraged products may enhance profit, they could also increase losses if the market is swayed against you, which is why CFD trading is not legal in India.