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Currency - FAQs

Currency Trading Platform

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.

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.

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.

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.

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.

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).

Corporates and individuals (e.g. importers and exporters), Investors, Traders, Hedgers, Speculators and Arbitrageurs can trade and benefit from currency markets.

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.

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.

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.

The Spread is the difference between the BID and the ASK price in the market quotes.

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.

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.

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

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

On NSE/BSE, currency futures and options can be traded between 9:00 a.m. to 5:00 p.m. from Monday to Friday

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.

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.

On the NSE/BSE, tick size or the smallest movement in currency futures is 0.25 paise or INR 0.0025.

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