1.
What are Currencies?
Currency or the Foreign Exchange is a generally accepted form of
money, including coins and paper notes, which is issued by a Government and circulated
within an economy.
2.
How are Currencies Quoted?
Unlike the other financial assets, the price of any currency is
always versus another currency – for example the US Dollar versus the Euro. The
two currencies in the quote are known as a pair which consists of a ‘base’ currency
and a ‘counter’ currency. In a quote of USD/EUR (US Dollar to Euro) the ‘base’ currency
is USD and the ‘counter’ currency is EUR.
3.
What is Forex Market?
Forex (Foreign Exchange Market) – is a gigantic financial market
in the world where foreign currencies are traded by participants spread all over
the globe. The market has no certain place of auction, conduction and is a package
of various trading, investment and speculative operations with currencies which
are carried out virtually 24 hours a day.
4.
Who participates in the Forex Market?
The global banking enterprises (central, commercial and investment)
influence the current market situations the most, but recently the number of other
market participants (international corporations, companies which manage assets,
futures and options traders and private investors) have grown.
5.
What is Online Currency Trading?
Markets are places to trade goods. The same goes with FOREX. The
Forex Goods (merchandise) are the currencies of various countries. Online Currency
Trading is the act of buying and selling international currencies using the internet
based platforms. Banks and financial trading institutions engage in the act of bulk
currency trading. Individual investors can also engage in currency trading, attempting
to benefit from variations in the exchange rate of the currencies.
6.
How does the Currency Market bring Buyers and Sellers together?
The currency or the foreign exchange market is normally based on
currency trading platforms, where different major currencies of the world are traded.
The foreign exchange market works as a medium to bring two parties together who
wish to trade currencies at some agreeable rate. For instance, you can exchange
one country’s currency for that of another simultaneously at some exchange rate.
If you want to sell Indian rupee (INR) to buy the US dollar (USD), there must be
someone else who wants to sell dollar for rupee at the same exchange rate. The Currency
Trading (FOREX) market is the biggest and the fastest growing market in the world
economy. Its daily turnover is more than 2.5 trillion dollars, which is 100 times
greater than the NASDAQ daily turnover.
7.
Which Exchanges offer Currency Trading in India?
Currency trading on the national level is offered by National Stock
Exchange (NSE), Bombay Stock Exchange (BSE) and Metropolitan Exchange.
8.
Who are the Regulators of the Market in India?
The exchange traded currency derivative market is regulated by
SEBI through the recognized stock exchanges. The Foreign Exchange Management Act
is the law, which regulates the Foreign Exchange Market .The regulatory authority
for the Indian Foreign Exchange Market is the Reserve Bank of India (RBI).
9.
Who can trade in Currency Markets?
Corporates and individuals (e.g. importers and exporters), Investors,
Traders, Hedgers, Speculators and Arbitrageurs can trade and benefit from currency
markets.
10.
What are Currency Futures?
Currency Futures are exchange organized contracts which determine
the size, delivery time and price of a commodity. Futures can easily be traded because
they are standardized by an exchange.
11.
What are Currency Options?
A Currency Option is a contract that grants the buyer the right,
but not the obligation, to buy or sell a specified currency at a specified exchange
rate on or before a specified date. When you take an option to buy an asset it is
called a ‘call’ and when you obtain the right to sell an asset it is called a ‘put’.
To determine whether it is profitable to exercise an option, the current market
price (spot price) and the price in the option (strike price) need to be compared.
12.
What are Long and Short positions?
Short Positions are taken when a trader sells currency in anticipation
of a downturn in price. Making this move allows the investor to benefit from a decline.
Long positions are taken when a trader buys a currency at a low price in anticipation
of selling it later for more. Making these moves, allows the investor to benefit
from changing market prices. Since currencies are traded in pairs, every forex position
inevitably requires the investor to go short in one currency and long in the other.
13.
What factors affect Currency Trading?
Various economic factors, domestic and international, affect the movement of a currency.
Exchange rates are determined by factors, such as interest rates, economic confidence
and current account on balance of payments, economic growth and relative inflation
rates.
14.
What is Bid and Ask in Forex Trading?
“Ask” is the price at which broker/dealer is willing to sell. It
is also called as an "Offer". “Bid” is the price at which broker/dealer is willing
to buy.
15.
What is Spread?
The Spread is the difference between the BID and the ASK price
in the market quotes.
16.
How to Trade Currency Futures?
A Currency Future, also known as FX future, is a futures contract
to exchange one currency for another at a specified date in the future at a price
(exchange rate) that is fixed on the purchase date. On NSE, the price of a future
contract is in terms of Indian Rupee per unit of other currency, e.g. US Dollars.
Currency Future contracts allow investors to hedge against foreign exchange risk.
Currency Derivatives are available in four currency pairs viz. US Dollars (USD),
Euro (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY). On the NSE, Cross
Currency Futures & Options Contracts on EUR-USD, GBP-USD and USD-JPY are also available
for trading in Currency Derivatives segment.
17.
What is the importance of Forex Market from the business/economic perspective?
In a globalized world, every business is subject to the risk of
unforeseeable changes in business environment. Volatility in exchange rate affects
your business growth and can be significant depending upon the underlying exposure.
If you are an exporter, importer or have foreign currency loans, you are directly
exposed to exchange rate fluctuation.
18.
How to frame a Trading Strategy using Charts?
Making sound trading decisions and developing a sound and effective
trading strategy is an important foundation of trading. Before developing a trading
strategy, a trader should have a working knowledge of technical analysis as well
as knowledge of some of the more popular technical studies. Charts are a very useful
tool in determining the short term trends in currency values and traders can track
the price movements regularly to take decisions while trading currencies
19.
How to use Support and Resistance Levels while Trading?
Determining "support" and "resistance" levels is the key for successful
trading decisions. The market normally trades above its support levels and trade
below its resistance levels. If a support or resistance level is broken, the market
is then likely to follow through in that direction. These levels are determined
by analyzing the chart and assessing where the market has encountered unbroken support
or resistance in the past
20.
What are the Market Timings for trading Currencies in India?
On NSE/BSE, currency futures and options can be traded between
9:00 a.m. to 5:00 p.m. from Monday to Friday
21.
How to Manage Risk Effectively?
Traders should trade in small quantities and maintain a disciplined
approach while trading in currencies. Given the volatile nature of the market and
its strong linkage with other asset classes like equities, commodities and debt
markets, cutting a trade at the right time is critical. Also due importance needs
to be placed on keeping strict stop losses.
22.
What is the Daily Settlement Price for Currency Futures?
On the NSE/BSE, the daily settlement price for Currency Futures
is calculated on the basis of the last half an hour weighted average price.
23.
What is the Tick Size for Currency Futures in India?
On the NSE/BSE, tick size or the smallest movement in currency
futures is 0.25 paise or INR 0.0025.