How To Start Forex Trading In India

A Forex Trading Strategy is a way for determining when to trade a currency pair by a trader. But what makes it so important? Foreign currency values change on a regular basis, and the best strategy would allow a trader to reap the maximum benefits.

Traders evaluate Forex strategies based on a number of factors in order to determine which is the best - Time requirement, frequency of market opportunities, etc. Below elaborated are some brilliant trading strategies –

1. Price Action Trading

Price action trading is a strategy of price prediction and speculation used by forex and other traders.

This strategy uses historical data and prior price movements, as well as all technical analysis tools including bars, charts, price bands, trend lines, low and high swings, technical levels, and more, all of which are customised to the trader's preferences.

Short-term, medium-term, and long-term periods can all be used to determine price action trading patterns. This enables the trader to examine several timelines before determining whether to sell or buy.

Candle Wicks, Oscillators, Trend Identification, Indicators, Fibonacci retracement and other symbolic identifiers are just a few of the support/resistance levels that help a price action trader make a move.

2. Range Trading Strategy

The range trading strategy is one of the most regularly utilised trading methods across all markets, and it is frequently employed by FX traders.

Forex traders that use the range trading strategy look for support and resistance areas and place transactions accordingly. Range Trading Strategy relies on technical analysis, including the use of oscillators, and it works perfectly fine with no volatility or discernibility, making it one of the most effective FX trading strategies.

It may be used in conjunction with Price Action trading to provide a high number of trading opportunities.

3.Trend Trading Strategy

The Trend Trading Strategy is employed by FX traders of all levels of expertise and is based on the concept of momentum. FX traders that take this method believe the asset will retain its momentum in the same direction as it is now.

To put it another way, this strategy aims to profit from directional momentum in the market. Because the trend is continually shifting, FX traders recognise that such a method is not ideal for a limited period of time.

When a zoomed-out frame can be utilised to investigate the pattern across a medium or longer timeframe, it's an excellent choice. It uses a risk-reward ratio for exiting, as well as technical analysis oscillators like the RSI and CCI.

4.Position Trading

A long-term approach that has shown to generate big returns and a good risk-reward ratio is one of FX's most powerful trading strategies. The notion is based on Elliott Wave Theory, and because it is a long-term strategy, minor market swings are ignored.

On long-term charts, the position trading approach demands a deep comprehension of technical and fundamental analysis. It's also critical to comprehend how economic or social factors impact trading volumes by keeping a careful eye on trends or changes in the country's environment over the short, medium, and long term.

5. Day Trading Strategy

This is a typical method used not only in forex trading but also in other markets like stocks. The trader sells all of the commodities before the market closes under this approach, and the choice is made by the end of the day.

Day trading isn't restricted to a single trade at the end of the day; in fact, this approach frequently involves many trades throughout the day.

Furthermore, it is clear that this is a short-term approach that usually results in a risk-to-reward ratio of 1:1. Technical Analysis is crucial; without it, trading would be a gamble that could result in losses. 

Types Of Forex Trading Orders

Now that you have a basic understanding of forex trading, you should be aware of the many sorts of orders that may be placed.

1. Do you want a Market Order or a Limit Order?

This is the initial command used to create a new position, which might be long or short. There are now two alternatives available.

First, The market order is used to take a position at the best available exchange rate in the market. The market order is executed at the current exchange rate right away.

Second, A limit order can also be used to set the rate at which you want to purchase or sell. The limit order is executed when the rate hits a predefined limit.

2. Take-profit Order

A trader could use a take-profit order to lock in profits on an open position.

A trader, for example, predicts the GBP/USD will reach 1.2940, but is uncertain about the rate's further trajectory. To lock in the earnings, he might place a take profit order.

The take-profit orders are also performed when the rate exceeds the predefined set limits. It's conceivable that the rate will climb above or below the limit, delaying the completion of the transaction.

3. Place a Stop-Loss Order

The take-profit order restricts the trader's losses, whereas the stop-loss order limits the trader's gains. Take, for example, a long trade in the GBP/USD at 1.2936, knowing that your maximum loss is 3 pips.

In this case, a stop-loss order at 1.2933 may be used to close the trade. Stop-loss orders protect investors from potential losses if the rate falls further.

How Much Leverage Is Right In Forex Trade?

Forex trading uses the leverage of up to 300:1, so you may trade for up to $30,000 with just $100 in your account. One of the reasons why forex traders lose money is because they utilise too much leverage.

The wise approach is to educate yourself and select a comfortable level of leverage that corresponds to your forex trading abilities.

1. Risk of High Leverage -

High leverage equates to taking big amounts of money out of the bank to take positions. Any negative rate movement has the potential to erode enormous amounts of capital. Let's have a look at an example.

Let's say you have $1,000 in your account and a leverage of 200:1, which implies you've borrowed $200 for every dollar you have.

You can now trade up to $1000 x 200 = $200,000 in total. There are three different lot sizes used in forex trading. A standard lot of 100,000 units, a mini lot of 10,000 units, and a micro-lot of 1000 units of any currency are all available.

You can buy two basic lots for $200,000. In a normal lot, one pip movement equals 100,000 x 0.0001 = 10 units of change. As a result, each pip movement will cost $10 x 2 = $20. If the trade goes against you by 25 pips, you will lose $500 (25 pips x $20).

This equates to 50% of the total amount of capital.

2. Lower Leverage -

In the identical case, if you limited the leverage to 50:1, the result would be the same. Then you'd have $1000 multiplied by 50 equals $50,000 to trade. This is enough money to buy five tiny lots.

One pip movement cost $1 in mini lots. As a result, each pip movement will set you back $5. You stand to lose $5 x 25 = $75 if the position goes incorrect even by 25 pips. This amounts to 7.5 percent of the total.

How to Identify the Appropriate Leverage Level? If you're just getting started, a smaller leverage ratio of 5:1 or 10:1 would be ideal. It will take time and practice to find the correct leverage.

Trading forex with a comfortable degree of leverage, placing stop-loss orders to limit losses, and limiting each position to 1% to 2% of total capital is the wise approach.

Understanding Bid, Ask, Spreads & Pips In Forex Trading 

Because there are no rigorous rules in the currency market, quotation standards might be difficult for newcomers.

The method of quoting is also dependent on the country. Direct quotations are used by the majority of countries; however, indirect quotes are used by Canada, the United Kingdom, Australia and New Zealand.

Quote:
A quotation is a currency pair in which one currency's value is mirrored in the other's value. The British pound and the US dollar currency pair are quoted at GBP/USD = 1.2937.

• The pair will also symbolise the currency you're trading. The base currency (GBP) is the initial currency or we can say the base, while the quote currency (USD) is the currency that's worked upon the base currency.

• The base currency is always equal to one unit. The most often utilised foundation currencies are the USD (US Dollar), EUR (Euro), GBP (British Pound), and AUD (Australian Dollar) (Australian Dollar).

• The stated quantity of 1.2637 is equal to one unit of the base currency (GBP) in the quote currency (USD).

• This means that 1 GBP equals 1.2637 USD, or that 1 GBP can be used to purchase 1.2637 USD.

Direct & Indirect Quote:
Quotes can be direct or indirect depending on the domestic currency.

• In a direct quote, the cited currency is the native currency. GBP/USD, for example, is a direct quote for a forex trader based in the United States.

• The native currency is the base currency in an indirect quote. In the foregoing example, GBP/USD is an indirect quote for a British FX trader.

• In other words, if USD is the domestic currency, the direct quotation is GBP/USD = 1.2637, which means you can purchase 1.2637 USD with 1 GBP, and the indirect quotation is USD/GBP = 0.7640, which means you can buy 0.7460 GBP with 1 USD.

Bid & Ask:
A bid or purchase price and an ask or sell price will always be included in a forex quotation. In terms of the base currency, both of these are crucial.

• When buying a currency pair, the ask-price refers to the amount of quoted currency that must be paid in order to purchase one unit of the base currency.

• You must pay 1.3854 USD to purchase one pound sterling.

• ASK - When selling a currency pair, the bid price is used to determine how much of the quoted currency you'll get for selling one unit of the base currency.

• You will receive 1.3854 USD if you sell 1 GBP.

• In a quote, the ASK price will always be higher than the BID price.

• Imagine yourself at the forex market, where banks and other participants are ready to buy and sell currencies. This is another simple way to grasp the phrases.

• The Bid price is the amount the bank is willing to "buy," while the Ask price is the amount the bank is willing to "sell." The bank is willing to buy 1 GBP at 1.3854 and sell it at 1.3850 in the example above.

• At the bank, you can buy 1 GBP at the sell (ask) rate and sell 1 GBP at the buy (bid) rate.

Spread and Pip

• The difference between the Ask and Bid prices is known as the spread. In the case above, the spread is 1.3854 – 1.3850 = 0.0004.

• A pip is the smallest amount that a price can move in any currency quote. In the GBP/USD exchange rate, the smallest price change is 0.0001. As a result, each pip is worth 0.0001.

1. The Great British Pound (GBP)

Due to its tremendous liquidity, the Great British Pound is the fourth most traded currency. Because of its close ties to peers such as the USD, the GBP has a high value.

2. The U.S. Dollar (USD)

The USD is widely accepted in trade and commerce around the world. The US dollar is extremely liquid, and it is the most traded currency in the world, with a pair for every major currency.

The US dollar is the most widely used global reserve currency, with central banks from almost every country using it.

3. The Australian Dollar (AUD)

Among the other popular currencies, the Australian dollar has the greatest yield. The Australian dollar has a link to commodities like gold and silver.

4. The Swiss Franc (CHF)

Because of its negative association with the Canadian Dollar, Australian Dollar, and US government yields, the Swiss Franc is seen as a safe haven in FX markets.

5. The Euro (EUR)

The Euro is the world's second most traded currency and the second most important reserve currency for trade and commerce. In the Eurozone, the Euro is widely utilised as a shared currency by various countries.

6. The Japanese Yen (JPY)

The Japanese Yen is Asia's most widely traded currency. The strength of Japanese manufacturing exports is reflected in the Yen.

7. The Canadian Dollar (CAD)

The Canadian Dollar is the most important commodity currency in the world. The CAD has a strong relationship with crude oil and the US Dollar.

Most Commonly Traded Currency Pairs

Regardless of the fact that each country has its own official currency, only a few countries actively deal in the foreign exchange market.

The demand for highly liquid currencies from politically stable industrialised countries, such as the US Dollar, the British Pound, and the Japanese Yen, is always high.

The following is a list of widely traded pairs in no particular order:

• U.S. Dollar - Canadian Dollar  

• The Euro - Japanese Yen

• The Euro - U.S. Dollar      

• The Euro - The Swiss Franc

• U.S. Dollar - The Swiss Franc

• The Great British Pound - U.S. Dollar

• The Australian Dollar - The Canadian Dollar

Reasons For Currency Fluctuations

Interest rates, GDP, consumer confidence, inflation, unemployment, and political stability all have a significant impact on a country's currency movements.

Depending on the announcement and the state of the country, the currency can experience significant changes, resulting in substantial gains or losses.

The following is a list of economic indicators that are thought to have the biggest impact on the currency.

1. Inflation -
Price increases are indicators of inflation, which causes the home currency to decline.

2. Gross Domestic Product (GDP) - 
The Gross Domestic Product (GDP) is a measure of a country's economic health. The healthier a country is, the more foreign investment it draws, which leads to a rise in the currency's value.

3. Employment Data -
Significant growth in employment implies that the country's economy is thriving, which can have a good impact. While reductions are a sign of possible contraction, the data may cause the currency to fall in value.

Economic data and currency movement are frequently influenced by the circumstances that exist at the time the data is released.

4. Events in the Macroeconomic and Geopolitical Spheres -
War, elections, financial crises, and monetary policy shifts all have the potential to transform or reshape a country's fundamentals.
As a result, macroeconomic and geopolitical developments cause the most volatility in the FX markets.

5. Rates of Interest -
Higher interest rates tend to attract foreign investment, raising the value of the domestic currency. Lower interest rates, on the other hand, are undesirable to foreign investment, lowering the currency's relative worth.

Who Can Trade In The Forex Markets?

The following are the main participants in the forex market:

Hedgers -
Currency traders use the currency markets to protect themselves from unfavourable exchange rate changes. Their major goal is to reduce risk rather than gain money. Importers, exporters, central banks, banks, and companies are all common hedgers.

Speculators -
Speculators' primary goal in the currency markets is to make money. They don't take any foreign exchange risks; instead, they buy and sell currency derivatives in order to profit from changes in exchange rates.

Arbitrageurs -
Arbitrageurs are exclusively interested in profiting from price differences between the three stock exchanges for the same currency derivative.

As a result, they'll buy a derivatives contract at a cheap price on one market and sell it at a higher price on another. Arbitrageurs are short-term profit-takers who do not keep market positions for long periods of time.

Legality Of Forex In India 

The legality of forex trading in India is a hotly debated topic. It has been subjected to a number of constraints and restrictions.
While forex trading is not banned in India, it can only be done through the Securities and Exchange Board of India's dealers (SEBI).

To comprehend the legality of forex trading, it may be separated into two types. There are two types of forex trading:

1. Spot forex trading

2. Forex trading with derivative instruments
   

Spot forex trading refers to transactions in which a person holds physical and legal ownership of the currency. Futures and options, on the other hand, are derivative instruments.

When interacting with enterprises from various regions of the world, it assists large corporations in hedging their currencies.

This type of currency trading is illegal in India and has been outlawed by the Reserve Bank of India, the country's primary financial regulator. It is in charge of making all major decisions as well as foreign exchange control.

[Note: Foreign exchange trading is not illegal in India for non-resident Indians (NRIs).]

Previously, there was no such rule in place, and dealing foreign exchange was unrestricted. After a few years, the country's foreign exchange reserves began to decline.

The Foreign Exchange Regulation Act of 1973 was enacted to solve this issue. FERA, on the other hand, was unable to control operations, and as a result, the Rupee fell in value in 2013.

To keep up with the changing circumstances in the foreign exchange market, the Central Government abolished and revised the Foreign Exchange Regulation Act.

The Foreign Exchange Management Act of 1999 was enacted in response to the changing market environment. It went into effect on June 1, 2002.

India's philosophical approach shifted from one of conserving foreign exchange to one of managing and controlling foreign exchange in a more liberal and practical manner.

The Reserve Bank of India has been engaged in the foreign exchange market and has established some laws and regulations to manage it.


Forex trading activity is taxable in India, however, following the introduction of the Good and Service Tax (GST) in July 2017, the tax structure has changed from earlier years.

Fortunately, it has changed for the better because the GST payable is less; according to reports, it is now between 0.058% and 0.18% of the taxable portion of the Forex transaction.

GST is the only form of tax that applies to Forex trading activity in India, however, the taxable value can be further subdivided into one of three categories or thresholds.

Pros Of Forex Market

The world's largest financial market is the largest because it offers some benefits to its players. The following are some of the primary benefits:

1. Flexibility

The forex market offers traders a great deal of flexibility. This is due to the fact that there is no limit to the amount of money that may be traded.

Furthermore, there is essentially no market regulation. This, combined with the fact that the market is open 24 hours a day, makes for an extremely flexible trading environment.

On the weekends or late at night, people with regular occupations can engage in Forex trading. They cannot, however, do the same if they are investing in their own country's stock or bond markets!

As a result, part-time traders prefer Forex trading since it allows them to have a flexible schedule without interfering with their full-time jobs.

2. Option of Trading

Traders can choose from a wide range of trading alternatives on the forex markets. Traders can choose from hundreds of different currency pairings to trade.

They also have the option of engaging in spot trade or entering into a long-term deal. Futures contracts are also available in a variety of sizes and maturities to fit the demands of Forex traders.

As a result, the Forex market offers a solution for any budget and investor with a different risk appetite. It's also important to remember that the Forex markets have a huge trading volume.

The Forex market sees more trade than any other market in the globe. As a result, Forex offers traders unrivalled liquidity, allowing them to join and exit the market in a matter of seconds, whenever they want!

3. Costs of Transactions

In comparison to other marketplaces, the forex market offers a low-cost transaction environment. Trading in Forex has extremely low transaction costs when compared to trading in other markets on a percentage point basis.

This is due to the fact that the Forex market is dominated by dealers who issue a two-way quote after reserving a spread to cover their risks. In the Forex market, pure play brokerage is quite low.

4. Leverage

Among all financial asset markets, forex markets offer the largest leverage. The Forex market's arrangements allow investors to leverage their initial investment up to 30 times and trade in the market! Profits and earnings are amplified as a result.