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Currency | February 04, 2021

Benefits of Currency Trading in India

Currency or forex trading is the most heavily traded markets in the world with volumes standing at $5 trillion a day, much more than that traded on NYSE. In India, this market is on the rise with daily transactions increasing exponentially. Earlier, there were only big tickets players like banks, institutional investors trading heavily in this market. However, with the advent of derivative products, even retail participants can leverage this opportunistic market. Here are some major benefits for entering this market in India:

  1. Lower margin requirements: Unlike equity markets, Currency trading allows you to buy and sell by keeping only a small percentage of the position. This allows the traders to achieve the optimum rate of return on their deployed capital.
  2. Arbitrage: The currencies are traded on exchanges like NSE and BSE in India. The traders can benefit from the inefficiencies in the price from buying low to selling high on different exchanges.
  3. High Liquidity: One of the most important criteria to run a business is enough liquidity, which means to convert the asset into cash. Currency trading is the largest market in terms of volume turnover in the world. One can speedily enter and exit huge positions with a single click.
  4. Hedging: The process to protect your existing investment portfolio against future unforeseen losses. This is usually practiced by residents to protect their offshore investments and NRIs to hedge their domestic portfolio. It is also adopted by importers and exporter to limit their losses owing to currency rate fluctuation.
  5. Speculation: To gain from the highs and lows of the currency exchange rates, a trader must know the possible direction. For example, there is a possibility of USD appreciation with crude oil price rises, the trader would buy USD/INR future. Similarly, if there is a possibility of INR appreciation, they would short sell USD/INR futures to make a profit from the movement.
  6. Lower entry barrier: The introduction of the derivative product in the last few years has opened the door of forex trading to the retail traders. With a small capital also, it is possible to make a mark with the correct strategy.

Once a trader ensures their journey with the currency market, there is no looking back. There is always a market open in the world, even when the domestic market closes. With the massive expansion of the decentralized market over the years, millions of traders are working hard every day to grab a piece of their profit.

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