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While trade is international, currencies are national. International transactions are conducted in global currencies, which are bought and sold against one another. This is currency trading
Just like stocks which have free market, currencies too have free market so that they can be traded to determine equilibrium price, which earlier was not possible due to non convertibility on current. Currencies are the largest traded assets on this planet. Daily volume alone in the US Dollar is 1.9 Trillion Dollars. There are speculators, arbitrageurs and hedgers which make the market dance up and down on a daily basis.
Currencies are traded on Recognized Stock Exchanges and in Inter Bank market on large scale. The rate determination mechanism has now shifted on the stock exchange floors. The contract size on the exchanges for USD INR contract is 1000 dollars which are traded from 9am to 5pm from Monday to Friday, which are settled on the last Wednesday of every month as per the RBI reference rate on that day. Approximate margins charged by the exchanges are 2.5% of the contract value, tick size being Rs 0.0025/-
The fundamental principle of currency market is interest rate parity which means that in a free market environment, holding any currency would fetch the same returns. But due to restrictions on capital account and interference by the Central Banks there arises trading or arbitrage opportunities for smart participants to profit there from on interest rate differentials.
We help you trade in the futures markets of currency. Trading in the currency futures market enjoys a few benefits such as Small investment size, Low volatility, Low margin, Better rates than forward markets, etc.
The fundamental principle of currency market is interest rate parity which means that in a free market environment, holding any currency would fetch the same returns. But due to restrictions on capital account and interference by the Central Banks there arises trading or arbitrage opportunities for smart participants to profit there from on interest rate differentials.
Currencies are traded in derivatives, specifically in futures and options. Here’s more about these methods
You can trade in currency futures on the National Stock Exchange (NSE). Futures trading allows you to enter into a contract (having a maximum period of 3 months), and take buy/sell positions in a currency of any country.
Trading in futures is not as complex as it sounds. If, during the contract period, the price moves as you had anticipated, you make a healthy profit, and vice versa.
An option is a contract between two parties (the seller and the buyer) that gives the buyer the right, but not the obligation to buy or sell the security, on or before a particular date. To carry out this transaction, the buyer has to pay certain percentage of order value as margin.
There are two types of options: call and put. The former allows the trader to buy the currency at a certain price, while the latter allows him to sell it at a certain price.