Investment has become pretty popular in today’s world. People invest their money in mutual funds, stocks, and bonds to raise capital that requires one to opt for a Demat account. Lately, there’s a new investment instrument that has gained massive popularity in India – Currency Trading.
Often referred to as Foreign Exchange or Forex, Currency trading refers to the process of buying and selling currencies in the Forex marketplace to earn profits. With more than $5 trillion being traded daily, the currency trading market is undoubtedly the biggest global marketplace and offers quick growth projections. One can trade in currencies that are benchmarked against INR like USD, Euro, UK Pound, and Japanese Yen. But first, let us analyse the benefits of Currency trading in India.
Hedging is a way of reducing your losses in the light of unexpected movement in the price of currency pairs. For instance, if you have a payment to make in USD and you think that USD-INR is going to depreciate, you can hedge your forex exposure by purchasing USD-INR and that will fix your payout rate. Hedging can be done through simple hedging (place trade to buy a currency pair and place another trade to sell the same), complex hedging (has a different approach than simple hedging because of restrictions from trader), multi-currency pair (you make a hedge using two different currency pairs), and forex option (agree to conduct an exchange at a particular price in future.)
Currency prices, even though unstable, are somehow predictable. Besides, short term movement of markets can be speculated to some extent. Here the speculators buy a currency when price is weak and trade the same currency when it has a great value.
This is the strategy of exploiting the price disparity in the forex marketplace to earn profits. The trader here takes advantage of the inefficiencies in the exchange rate in different markets, which happens for a short period. You can buy the currency at a lower price and then sell it at a higher price to earn profits.
In currency trading, you can get much higher leverage as compared to stocks. Leverage involves borrowing money, in this case from a broker, to invest in the currency market. This is possible only if intraday trading is involved. You trade more money than what you have, and pay only a margin price of traded value and therefore get pretty high leverage.
Currency trading is a great mode of earning profits. There are a plethora of reasons you should be investing your money in the currency market. The forex marketplace is open round the clock and is comparatively hassle-free. Demat account opening is not a necessity to trade-in the currency market. The online process of forex is commission-free and superbly quick. Even though the process can be risky, but if executed wisely, can be highly rewarding. Gather adequate knowledge about the market and its traits before trading your money.