Forex Trading in India: A Complete Guide for Beginners in 2023

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Forex trading is the act of buying and selling currencies in the global foreign exchange market. The forex market is the largest and most liquid financial market in the world, with an average daily turnover of over $6 trillion. Forex trading can be done for various purposes, such as hedging, speculation, arbitrage, or diversification.

Forex Trading in India
Forex Trading in India

In this blog post, we will cover everything you need to know about Forex trading in India.

Consider reading: Best Copy Trading Platforms

What is Forex Trading in India?

Forex trading in India is legal, but with some restrictions. According to the Reserve Bank of India (RBI), Indian residents can trade forex in the following ways:

  • Trade currency pairs involving the Indian rupee (INR) with a registered Indian broker on a recognized stock exchange, such as the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), or the Metropolitan Stock Exchange (MSE).
  • Trade cross-currency pairs (pairs that do not involve the INR) with a registered Indian broker on a recognized stock exchange, but only during specified hours (from 9:00 AM to 7:30 PM IST).
  • Trade any currency pair with an offshore broker, but only through a Liberalized Remittance Scheme (LRS) account, which allows Indian residents to remit up to $250,000 per financial year for any permissible current or capital account transaction.

The RBI also maintains an alert list of unauthorized forex trading platforms, apps, and websites that are banned or blacklisted in India. Using these platforms may land you in legal trouble or expose you to fraud and scams.

Therefore, it is advisable to trade forex only with a regulated and reputable broker that complies with the RBI guidelines and offers adequate protection to your funds.

Important Forex Trading Terms

Before you start forex trading in India, you need to familiarize yourself with some basic forex trading terms and concepts. Here are some of the most important ones:

  • Currency pair: A currency pair is a combination of two currencies that are traded against each other. For example, EUR/USD is a currency pair that represents the exchange rate between the euro and the US dollar.
  • Base currency and quote currency: The base currency is the first currency in a currency pair, while the quote currency is the second currency. For example, in EUR/USD, EUR is the base currency and USD is the quote currency. The exchange rate of a currency pair tells you how much of the quote currency you need to buy one unit of the base currency.
  • Bid and ask price: The bid price is the price at which you can sell the base currency, while the ask price is the price at which you can buy the base currency. The difference between the bid and ask price is called the spread, which is the cost of trading.
  • Pip: A pip is a unit of measurement for the change in value of a currency pair. It is usually the fourth decimal place in most currency pairs, except for those involving the Japanese yen, where it is the second decimal place. For example, if EUR/USD moves from 1.1850 to 1.1855, it has moved 5 pips.
  • Lot: A lot is a standard unit of size for a forex trade. One standard lot is equivalent to 100,000 units of the base currency. There are also smaller lots, such as mini lots (10,000 units), micro lots (1,000 units), and nano lots (100 units).
  • Leverage: Leverage is a tool that allows you to trade with more money than you have in your account. It is expressed as a ratio, such as 50:1, which means that you can trade with $50 for every $1 in your account. Leverage can amplify your profits, but also your losses.
  • Margin: Margin is the amount of money that you need to deposit in your account to open and maintain a leveraged trade. It is calculated as a percentage of the total value of your trade. For example, if you want to trade one standard lot of EUR/USD at 50:1 leverage, and the current exchange rate is 1.1850, you need to deposit $2,370 as margin ($100,000 x 1.1850 / 50 = $2,370).
  • Profit and loss: Profit and loss (P&L) is the amount of money that you make or lose from your forex trade. It is calculated by multiplying the number of pips that the currency pair has moved by the value of each pip. For example, if you buy one standard lot of EUR/USD at 1.1850 and sell it at 1.1900, you make a profit of $500 (50 pips x $10 per pip).

How to Trade Forex in India

To get started with forex trading in India, you need to follow these steps:

  1. Choose a regulated and reliable forex broker that offers the currency pairs, trading platforms, tools, and services that suit your needs and preferences. You can use our list of the best forex brokers in India as a reference.
  2. Open a trading account with your chosen broker and verify your identity and address. You may also need to provide proof of income and source of funds, depending on the broker’s requirements.
  3. Deposit funds into your trading account using a suitable payment method. If you want to trade with an offshore broker, you need to open a LRS account and comply with the RBI limits and regulations.
  4. Choose a currency pair that you want to trade and analyze the market conditions, trends, and factors that may affect its price movements. You can use various technical and fundamental analysis tools, indicators, charts, and news sources to help you with your analysis.
  5. Decide whether you want to buy or sell the currency pair, based on your market view and trading strategy. You can also use various order types, such as market orders, limit orders, stop orders, and trailing stop orders, to execute your trade at your desired price level and manage your risk exposure.
  6. Monitor your open trade and close it when you have reached your profit target or stop loss level. You can also modify or cancel your trade at any time before it is closed.
  7. Withdraw your profits from your trading account using a suitable payment method. You may need to pay taxes on your forex income, depending on your tax residency and status.

Consider reading: India Forex Reserves

Advantages of Forex Trading

Forex trading in India offers many advantages for traders, such as:

  • Accessibility: You can trade forex anytime and anywhere, as long as you have an internet connection and a device that supports a trading platform. The forex market is open 24 hours a day, five days a week, from Monday to Friday.
  • Liquidity: You can easily enter and exit the market, as there are always buyers and sellers available for any currency pair. The high liquidity of the forex market also means that you can enjoy low spreads and fast execution speeds.
  • Diversity: You can trade a wide range of currency pairs, from major pairs (such as EUR/USD, USD/JPY, GBP/USD) to minor pairs (such as EUR/GBP, AUD/NZD, CAD/CHF) to exotic pairs (such as USD/INR, EUR/TRY, GBP/ZAR). You can also trade different types of forex products, such as spot forex, futures, options, swaps, and contracts for difference (CFDs).
  • Opportunity: You can profit from both rising and falling markets, as you can buy or sell any currency pair depending on your market view. You can also use leverage to increase your trading capital and potential returns.
  • Flexibility: You can customize your trading style, strategy, and risk appetite according to your goals and preferences. You can also use various tools and techniques to enhance your trading performance and experience.

Risks Associated With Forex Trading

Forex trading in India also involves some risks that you need to be aware of and manage properly, such as:

  • Market risk: The forex market is influenced by various factors, such as economic data, political events, central bank policies, market sentiment, and natural disasters. These factors can cause sudden and unpredictable price movements that may go against your expectations and positions.
  • Leverage risk: While leverage can magnify your profits, it can also magnify your losses. If the market moves against your position, you may lose more than your initial margin deposit and face a margin call from your broker. A margin call is a request from your broker to deposit more funds into your account to maintain your open position or close it at a loss.
  • Broker risk: Not all forex brokers are regulated and reputable. Some brokers may engage in fraudulent or unethical practices, such as manipulating prices, widening spreads, rejecting orders, or delaying withdrawals. Therefore, it is crucial to choose a broker that is licensed by a reputable authority and offers adequate protection to your funds.
  • Operational risk: Forex trading involves various operational aspects, such as internet connection, device compatibility, platform functionality, order execution speed, etc. These aspects may encounter technical issues or errors that may affect your trading performance and experience.

Most Traded Forex Currencies in the World

Here are the most traded forex currencies in the world in 2023, according to the Bank for International Settlements (BIS):

RankCurrencyISO CodeShare (%)
1US DollarUSD88.3
3Japanese YenJPY16.8
4British PoundGBP12.8
5Australian DollarAUD6.8
6Swiss FrancCHF5.1
7Canadian DollarCAD4.7
8Chinese YuanCNY4.4
9Swedish KronaSEK2.2
10New Zealand DollarNZD2.1
Most Traded Forex Currencies in the World

The table shows the percentage share of each currency in the total average daily turnover of the forex market, which was $6.6 trillion in 2023. The table also shows the ISO code of each currency, which is a three-letter abbreviation that is used to identify the currency in the forex market.

As you can see, the US dollar is the dominant currency in the forex market, accounting for almost 90% of all transactions. The euro and the Japanese yen are the second and third most traded currencies, respectively, followed by the British pound and the Australian dollar.

The Swiss franc, the Canadian dollar, and the Chinese yuan are also among the top ten most traded currencies, while the Swedish krona and the New Zealand dollar are the least traded currencies in the table.

Final Thoughts on Forex Trading in India

Forex trading in India is a lucrative and exciting activity that can offer many benefits for traders who are willing to learn and master it. However, forex trading also involves significant risks that require careful management and mitigation.

To trade forex successfully in India, you need to choose a regulated and reliable broker that offers you access to a variety of currency pairs, platforms, tools, and services. You also need to develop a solid trading strategy that suits your goals and preferences.

You also need to keep yourself updated with the latest market news and trends that may affect your trading decisions.

We hope that this blog post has given you a comprehensive overview of forex trading in India and helped you understand its basics, advantages, risks, and most traded currencies.

If you have any questions or feedback, please feel free to leave a comment below or contact us directly. Happy trading!

FAQs on Forex Trading in India

Is forex trading Legal in India?

Yes, forex trading is legal in India. However, it is important to follow authorized brokers and permitted currency pairs to avoid penalties under FEMA. If you want to diversify your portfolio through online forex trading, ensure that you check the credentials of the broker.

Does Zerodha allow forex trading in India?

Yes, Zerodha allows forex trading. You can open an instant account with Zerodha to start trading forex today. Zerodha offers currency derivatives trading at BSE and NSE exchanges. Before beginning, customers need to activate the Currency trading segment in their Zerodha trading account.

Which company is best for forex trading in India?

Determining the best forex trading company in India can be subjective, but Saxo Bank is often considered a top choice due to its wide range of currency pairs. Fusion Markets is known for offering low commissions, while IC Markets boasts low FX commissions and tight spreads. Global Prime is favored for its low forex fees, and Tickmill offers low FX commissions and tight spreads.

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