There was a time when currency trading was considered an avenue reserved only for a select few experts. But in today’s time, it is quickly gaining momentum in India as an investment option available to many. With a host of information as well as opportunities available in foreign exchange, currency trading indeed makes for a lucrative trading option.
However, before venturing into the world of currency trading, it is prudent to know more about the currency market at large. In particular, it is best to familiarise oneself with the working of the currency market as well as how it can benefit a potential trader like you.
What is the currency market?
The currency market, also known as the Foreign Exchange market, is essentially a global, decentralized market that serves as a platform to trade currencies. It is also an over-the-counter market, which means that the two parties involved in a trade do so directly, without the supervision of a single exchange.
Overall, the global currency market operates on two levels:
- The Interbank Market: This is the section of the currency market that has some of the largest banks in the world as prominent players. In this interbank market, these banks exchange currencies with each other and conduct large-scale trades among themselves. This is an exclusive subsection of the foreign exchange market.
- Over-the-counter Market: This is the section of the currency marketwhere companies and individuals can trade in currencies. With the means of a broker and an online trading platform, anyone can participate in currency trading
Basics of Trading in the Currency Market
Trading in the currency market always works in pairs and this applies to both buying and selling of the currencies. Therefore, any trade taking place in the currency market is the simultaneous buying of a currency and selling of another. The value of these trades is determined by the exchange rate, which is the value of a currency with respect to another.
The exact nature of a currency trade is denoted by the appropriate symbols. For instance, INR stands for Indian Rupee, while USD stands for American Dollar. If you were to trade Indian Rupees against American Dollars, the trade would be denoted as such – INR/USD. Similarly, every currency in the world is denoted by three unique letters and the direction of the trade is denoted with a ‘/’ sign.
Features and Benefits of the Currency Market
The currency market is at present the largest financial market in the world. It is estimated that about $5.3 trillion a day, that is $220 billion per hour, are traded on the currency market.
This is because the workings of the currency market are considered unique. There are various factors that distinguish the working of the currency market from other forms of trading markets, such as equity and bonds.
- – The currency marketis largely unregulated, private and free, and there is no limit to the amount of currency that can be traded. It does not hold traders to harsh restrictions or require an institution to act as a mediator. It therefore offers opportunities to a variety of investors, ranging from banks, governments, companies to individual traders.
- – It also operates on a 24 hours a day, five days a week timeline and provides a large amount of flexibility to traders. It is important to note that in India, the timing for currency marketis between 9 am to 5 am .
- – Since one can trade in a wide variety of currency pairs, the currency market also offers a lot of trading options to traders. Traders can choose from trading in the spot market, the forward market or the futures market. In particular, the futures agreements are a popular option since they come in a variety of options (in size and maturity) for traders of all needs.
- – Moreover, trading in the currency marketcan also prove to be cost-effective for several traders. This is because in comparison with other financial markets, the currency market charges relatively low transaction costs for trading.
The currency market, more popularly known as the Foreign Exchange Market, works by facilitating exchange and trade of currencies across its platform. It is the largest financial market in the world, and with the right expertise, traders can make the most of the benefits of the currency market.
However, developing the right trading strategies takes time and trial and error. To that effect, you can benefit from the trial trading account feature offered by Angel One. Try out your trading strategies with virtual money until you gain enough experience and confidence to trade in the currency market in real life.