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Five Factors Which Make Currency Trading Attractive!

The foreign exchange markets provide a vibrant mechanism of exchanging different currencies with one and another, and thus, facilitating transfer of purchasing power from one country to another. With the massive growths of international trade and finance all over the world, trading in foreign currencies has grown tremendously over the last few years. Since the exchange rates are constantly changing, business firms are exposed to the risk of exchange rate movements. This leads to a heavy volume in global interbank forex market. Individual, also actively trade currencies like share trading and undertake the activity of buying and selling of foreign exchange. A continued rise in financial literacy in India is ensuring that Foreign Exchange Market is getting its due.In India, currencies are offered by exchanges like BSE, NSE and MCX-SX. The currency market is regulated by RBI and SEBI. There has been a rise in currency trading brokers in India and it makes sense for a retail investor or trader to understand how this market can benefit them.

Here are the five factors that make online currency market attractive:

Offers High Flexibility: Theglobalforex trading operates 24 hours in a day and therefore the swings in the market are fairly wide. The market provides a lot of flexibility as the price action is not dependent on a single factor. The market is thus quite flexible and offers a good scope in terms of trading as movements in a major single currency pair can often impact other currencies. In India, the currency markets function from 9 AM to 5 PM, offering a sizeable frame of time for active currency trading.

Margin Trading Facility: Entry barriers are almost nonexistent for currency trading as you start trading in forex with a minimal amount which can be used as margin. Since currencies are traded in derivatives market i.e. via options and futures, there is no need to deploy a large amount. Globally also Forex markets provide the maximum leverage compared to all the financial markets.

Exceptionally High Transparency: The Foreign exchange market is extremely large in size and operates 24/7 across all countries in different time zones. One of the most important aspects of the currency market price action is that it moves on easily available information. The currency pairs move on economic data, policy decisions, commodity prices, political developments etc. Major news related to these factors are mostly accessible to the public, makingthe currency market fair and transparent.

Limited Currency Pairs: Unlike stocks, where the market offers thousands of active shares to choose from, the currency market is a bunch of a handful of currency pairs. In India, the most popular currency pair is US dollar- Indian Rupee. Dollar is the primary global currency and most major currencies are paired with it in global markets. Facility to trade in these pairs is available with leading currency trading brokers in India.

Extremely Heavy Liquidity: Global foreign exchange market has the largest number of participants compared to other financial market. This promotes higher liquidity which brings forth the big players in the market which fills the large orders of the currency trade. This in turn eliminates the price manipulation and promotes efficient pricing.This ultimately decreasesthe possibility of large one way swings and leads to better trading opportunities.

Conclusion: The flexibility and volatility that currency markets offer are unparalled and hence it makes sense to actively trade in this market in order to diversity your overall investment and trading portfolio. However, because the forex markets operate through derivatives, there is a risk involved and it is warranted that a novice trader acts in a cautious manner while initiating currency trading. Latest news and regarding a country's economy can have a direct impact on the direction that the country's currency is heading and because currencies are traded in pairs, a major development in political or economic front can have a wide reaching impact. Therefore, it is desirable that one starts in a small scale, trading one currency pair at a time. Study the factors driving such a pair in detail and increase the size of trades over time.

Blog by – Dhruv Ajmera

Also Read: How To Select Best Financial Advisor?
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