What is Forex?
Just like the Shares are traded on exchanges, so is Currency Trading possible in India. However, where for equity, the rate of the shares is what matters, similarly, for forex trading, what makes all the difference is the rate of exchange.
This type of trade occurs in the Global Markets and is also called the Foreign Exchange market. In this type of trading, what determines the rate of exchange is which currency is paired against another.
The 2 currencies in the pair are given different terms, namely, a ‘base currency’ and a ‘quote currency’.
The base currency is the prevailing currency within a country. So, for India, the base currency is the Indian Rupee (INR). Now say if one wishes to trade the Dollar from India, the Dollar would be called the quote currency. Factors that would affect the INR negatively would have an inverse effect on the dollar and vice-versa.
Is Forex Trading in India Legal?
Although there are several companies that claim to allow the trade of forex seamlessly, the Indian Government has not completely allowed this sort of Currency Exchange. That being said, this partial allowance is only valid if the base currency is the INR and a few major exceptions which are listed below.
According to the FEMA (Foreign Exchange Management Act) Act 1999, also known as the FEMA Act, one could face imprisonment or a hefty fine if caught taking part in the trade of currencies out of the list provided by the Indian Government. However, this prohibition is not applicable to NRIs.
The Indian Government has not made any big comments here simply because the Foreign Exchange market is not governed by a single body. Since it does not have any representatives, it becomes difficult to point fingers in case of any fraudulent activities.
The best action one can take is simply to stay away from trading currencies other than with the base currency as INR. Even though there are unregulated brokers offering good amounts of returns through trading Forex, since it is not objectively legal in India yet, one must tread lightly.
How to Start Forex Trading in India?
The Indian Exchanges allow trading four pairs currently. These Pairs are USD/INR, GBP/INR, EUR/INR, and JPY/INR. Apart from the base currency being the INR, exchanges also allow the trade of EUR/USD, GBP/USD and USDJPY. These three currencies are referred to as Cross Currencies. For the Market timings of the Currency Market, you may visit this link here.
Trading of these currencies is possible through Derivative Contracts. Therefore, before trading these currencies, one must thoroughly educate themselves on the topics of Futures & Options. After this, one must contact a SEBI authorized broker and first enquire whether they allow the trade of currencies. Then on, you must comply with their requirements and trading currencies becomes as simple as clicking a button.
What makes the Currency market interesting is the number of leverage brokers provide for trading these instruments. Furthermore, Technical Analysis works very well for the charts of these currencies. The reason this is true is that the factors that affect the prices of these currencies are simple demand and supply. It is rare for events to occur that could affect these prices severely. Even when such an event occurs, it is major news and taking quick action is very possible.
Punishment for Forex Trading in India
As mentioned, as per the FEMA Act 1999, if one is caught taking part in the trading of Forex in India other than the allowed currencies, they may face imprisonment, or/and a fine. That being said, this act is not applicable to NRIs.
Forex Trading in India Timings
The Currency Futures and Options for all tradable currencies have a Normal Market Open Time of 09:00 (except on weekends). The Closing time for the Currency Futures and Options (USD/INR, EUR/INR, GBP/INR, JPY/INR), have a Normal Market Close Time of 17:00 Hours.
For the Cross Currency Futures and Options, the Normal Market Close Time is a little different at 19:30 Hours.
Forex Trading in India Zerodha
One SEBI registered broker that provides Currency derivatives in India is Zerodha. They are well known within the stock market trading community and also provide real-time charts which makes trading these currencies that much easier.
Forex Trading in India RBI Guidelines
Sticking to the tradable currencies will not be a cause for concern in any way. That being said, it is good to have all the knowledge on the subject before taking part in it. The RBI has publically notified the Indian Market Participants with information on the trading of Forex. Click here for the most recent notification.
Forex Trading in India for Beginners
If one wishes to seriously pursue trading Forex in India, they should first educate themselves with how the stock market works, what factors affect the prices and how severely. Also, understanding how Technical Analysis impacts the prices is another major subject one must take up before thinking about trading Currency Derivatives.
It is best to learn from an Institution that has practiced in this field and is willing to teach their strategies during actual market hours.
Goaled’s Stock Market Courses in Mumbai
If one wishes to learn ANYTHING related to trading and Investing, Goaled has the courses to fulfill all those needs. We not only teach Trading and Investing in equity, but also teach strategies for Currencies and Commodities in our Futures and Options Course.
Trading any instrument, be it commodities, currencies, equity, etc. must be done with complete knowledge from an experienced professional. Failure to derive this education and still take part can be disastrous to one’s wealth.
Before making any decision, it is a good idea to invest in educating yourself on the topics.