ForexForex orForeign Exchange or Currency Trading is a global market where currencies of different countries are bought and sold. This market is the largest and the most liquid globally, also one of the most important as without currency exchange, we cannot conduct international business. To trade in forex, you need to strategise where a currency is heading and trade via exchanges like the Bombay Stock Exchange and National Stock Exchange.
Following are thesignificant points you need to know about Forex Trade online andCurrency Market in India:
- Currency Pair: Currencies are traded in pairs, for example, USD/INR or JPY/INR. There are three types of currency pairs:
- Pairs that involve USD – major pairs, for example, USD/INR
- Some pairs do not include USD, but they peg major currencies against each other – minor pairs, for instance, INR/GBP.
- Pairs that have one primary currency paired with a minor one – exotic pairs, for example, USD/HKD
- Markets: Forex gets traded in the Cash and DerivativeMarkets so that investors can trade Forwards, Futures, Currency Swaps, and Options.
- Reasons for trading: Usually, investors invest in forex to hedge against international currencies by speculating on geopolitical events. Such investors may also want to diversify their portfolios.
- Base and quote currency: The currency mentioned first is the base currency in the currency pair, and the other is called Quote Currency. The value of a base currency is one, and it indicates the amount of quote currency required to buy a unit of the base currency. For example, if you are trading in USD/INR, USD is the base currency, and INR is the quote currency.
- Buy & sell: If you buy a currency pair, the base currency appreciates and vice versa.
- Bid and ask price: The price at which the base currency is bought is called the Big Price, and the price it is sold at is called the Ask Price. For example, if USD/INR is quoted at Rs. 65.67/65.61, then the Bid Price to buy 1 USD is Rs. 65.67, and the Ask Price to sell 1 USD is Rs. 65.61. The difference between the Ask and Bid Price is called Spread.
- Lots: Currency Trading happens in lots and has three major types of lots: micro (1k units), mini (10k units), and standard (1 lakh units).
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Forex Trading online is like a roller coaster ride, fraught with unanswered questions. Keeping your head between your shoulders and building an emotional equilibrium between profits and losses is essential.
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