As you are looking to trade in the currency markets in India, let me start by telling you a relatable conversation which happened a few months back that got me thinking of foreign exchange.
Recently I had been on a vacation to Switzerland with my family. As you can imagine, the country is beautiful. It was my 6-year-old nieces first visit to Europe, and she was completely awestruck.
Naturally, she too was attracted to those small stores that sold pretty little attractive toys.
On one of the days while we were there, she took me to this toy store she spotted off the street, and unfortunately, I knew I was in for trouble. She took a good 10 minutes and scanned the whole store to find a pretty little barbie worth 30 Euros.
I tried explaining to her that 30 Euros is quite costly especially for a little barbie!
She obviously didn’t understand my point because for her 30 Euros = 30 Rupees, completely unaware that she will have to multiply 30*89 to get the estimated amount equivalent to Rupees.
The situation got me thinking that there is a vast difference between the value of both the currencies and it is this inequality which allows us to trade in the currency pairs.
Today let us explore,
- What is Currency Trading?
- Basics of Currency Trading
- Which are the Currency Trading Pairs in India?
- What is the difference between the Base currency and Quotation currency?
- How to start Online Currency Trading in India
What is Currency Trading?
Currency trading is often referred to as Foreign Exchange or Forex. It is the buying and selling of currencies in the currency markets to make profits.What are the Basics of Currency Trading?
To become a successful forex trader, you first need to understand the basics of currency trading in India. 1. Currency pairs: Currencies are always traded in pairs. Popular currency pairs in the Indian currency markets are USD/INR, EUR/INR etc. 2. Bid & Ask Price: The price at which a currency is bought is known as the ‘bid’ price and the price at which a currency is sold is known as the ‘ask’ price. 3. Spread: The difference between the bid and the ask price is known as ‘spread’. 4. Pip: A “point in price” or pip is the smallest change in movement in the exchange rates of the currency pair. 5. Lot size: Unlike the share market where you can buy even 1 share, currency market deals in lots size. The lot size of 1 USD/INR contract is 1000. 6. Leverage: Leverage helps you take big positions against a small margin. [Suggested Reading: ‘What is Currency Trading or Forex Trading?’]Which currency pairs are traded in India?
In India, currency derivative trading is permitted in the following currency pairs: INR Pairs| USD/INR | US Dollar/Indian Rupee |
| EUR/INR | Euro/Indian Rupee |
| GBP/INR | Great Britain Pound/Indian Rupee |
| JPY/INR | Japanese Yen/Indian Rupee |
| EUR/USD | Euro/US Dollar |
| GBP/USD | Great Britain Pound/US Dollar |
| USD/JPY | US Dollar/Japanese Yen |
| USD/INR | US Dollar/Indian Rupee |
| EUR/INR | Euro/Indian Rupee |
| GBP/INR | Great Britain Pound/Indian Rupee |
| JPY/INR | Japanese Yen/Indian Rupee |
What is the difference between the Base Currency and Quotation Currency?
The standard practice while trading in currencies is to trade the currency as a ‘pair’. The value of the pairs keeps fluctuating according to the ask and bid price. Let us understand the Base currency and Quotation currency with a simple example: Each currency pair has a standard format, as shown below –Base Currency / Quotation Currency = Value
i.e. USD/INR = 73.61
The formula is broken into 3 parts, let’s figure out each one of them –Base Currency
Base Currency is always fixed to 1 unit of a currency (like 1 US Dollar or 1 Indian Rupee or 1 Euro etc.)Quotation Currency
Quotation currency refers to another currency which equates to the base currency (it can be any other currency apart from the base currency)Value
Value indicates the value of the Quotation Currency against the Base Currency. As we considered USD/INR = 73.61 The Base Currency = USD, The Base Currency is always fixed to 1 unit. Hence this is fixed to 1 US Dollar. Quotation Currency = INR Value is 73.61, which means for 1 unit of Base Currency, i.e. 1 USD, the equivalent quotation currency is 73.61 To summarise, $1 = Rs 73.61The current value of top currency pairs in Indian currency markets:
(as on 30th December 2020)| Base Currency | Quotation Currency | Pair | Pair Value |
| US Dollar | Indian Rupee | USD/INR | 73.59 |
| Euro | Indian Rupee | EUR/INR | 89.83 |
| Great Britain Pound | Indian Rupee | GBP/INR | 99.86 |
| Japanese Yen | Indian Rupee | JPY/INR | 0.71 |
How to start Online Currency Trading in India
Online currency contracts in India are cash-settled i.e. you do not get physical delivery of the currencies in your Demat account. Therefore, you won’t need a Demat account for currency trading. All you need is a currency trading account with a trustworthy broker like Samco to start currency trading in India.Steps to Start online currency trading in India:
1. You should have an internet connection Currency trading is all about making quick decisions. A delay of even 10 seconds can be the difference between profits & losses. So to avoid such situations you need to have a stable internet connection. 2. Search for an Authorised Currency Broker While looking for currency brokers you must keep these things in mind:- Your currency brokers should be registered with SEBI.
- Your currency broker should be well-reputed amongst currency traders.
- Your currency broker should offer a low flat brokerage structure.
- Your currency broker must offer a high leverage ratio against low margins. Your currency broker must provide a robust trading platform.
- Your currency broker should have clear segregation of client’s funds.
- Your currency broker should offer trading at lightning speed and also provide call and trade facilities.
- Traditional Currency Brokers provide tips and research recommendations to their clients. But the major disadvantage of traditional broking firms is that they charge very high brokerage for providing these research services.
- Discount brokers do not provide currency research but they charge flat brokerage fees. Samco has the lowest brokerage rates in the industry and charges flat Rs 20/trade irrespective of the trade size.
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