Money trading or currency trading is the act of trading in foreign currencies. It is also called forex trading. It is based on the fact that the values of currencies relative to each other keep fluctuating and thus traders seek to monetize the price differential. The money market or the forex market is the largest in the world measured by volume, far ahead of stocks or commodities.
Forex trading helps in price discovery of currencies. Businesses also indulge in forex trading as a way to hedge against fluctuations in currency values that can greatly affect the costs of doing business, especially for entities that are involved in foreign trade. As with stocks, forex trading requires a trading account from which to place orders for buying or selling currencies. However, unlike stocks or commodities, a demat account is not needed for money trading in India. One only needs a forex trading account and a bank account. Most popular brokerage firms offer the facility of trading accounts online for easy forex trading in India.
What is Money Trading
Before one understands the process of opening a forex trading account in India, it would be useful to quickly recap the basics of money trading as the distinctive nature of money trading activity influences the requirements for opening a trading account and makes it different from opening a standard stock trading account.
As explained earlier, forex trading or money trading is essentially buying and selling of currencies. Since it is another open market trading activity, why does one require a separate forex trading account rather than being able to use one’s demat account? The answer to this lies in the manner in which forex transactions are settled in India. One is not required to take physical delivery of the currency one is trading in as all transactions are cash-settled. A demat account, on the other hand, is used for storing equities, debts, etc in electronic form. (demat is short for dematerialized). This is the reason one cannot use a standard demat account for money trading in India and needs to open a separate money trading account online.
How to Open a Real Money Trading Account in India
The first step to opening a trading account for money trading in India is to find a reputable broker that is registered with the Securities and Exchange Board of India or SEBI. SEBI is the regulator that oversees currency trading operations in India. However, it needs to be noted that unlike stocks, money trading is more rigorously regulated in India. This is because the currency of any nation is its legal tender and a symbol of its sovereignty, and most nations are mindful of the kind of transactions that can be undertaken using their currency.
In the Indian money market, for instance, it was forbidden until a few years ago to enter into any transaction that did not involve the INR as the base currency. ( currency transactions happen in pairs with a base currency and a quoted currency). Only in 2015 did the RBI allow a few cross currency pairs ( for instance USD-GBP or USD-JPY) to be traded. Violations of currency trading norms can invite action under the Foreign Exchange Management Act (FEMA). This is why it is essential to open a money trading account only with a reputed and SEBI registered broker.
Another parameter while shortlisting the right broker is commission and transaction charges. High commissions and transaction charges imposed by a broker can eat into one’s margins. It is imperative to do proper research and opt for the broker that levies the minimum brokerage charges in order to maximize one’s earnings in the trading account. In addition to commission and transaction charges, brokers often charge account maintenance charges as well.
It is advisable to make a tracking sheet listing the names of all the popular brokers and the various overhead costs such as transaction charges, account maintenance charges, etc charged by them. One can also compare various other features of the different brokers such as margins offered, and minimum account balance required for the account. This way one can zero in on the most cost-effective platform for opening a trading account.
After one has zeroed down on a suitable broker according to the above-mentioned parameters, one needs to fill out an application form or trading account opening form provided by the relevant broker. In addition to this, one must fulfill the KYC (know your customer) requirements. These include sharing copies of relevant documents – photo ID such as passport or Aadhar card, residence proof such as voter card or electricity bill, and financial/income proof such as a copy of the latest tax returns, form-16, etc.
After all the forms have been duly submitted, the concerned broker may conduct a final verification over the phone or in person. Once the verification is complete, your online trading account is ready for money trading. With reputed brokerage firms, the entire process is usually completed within a few days and is hassle-free. This is another reason why one should opt for a brokerage firm with a good reputation in the market.
Money trading or forex trading is one of the most popular trading activities the world over that is crucial to the global economy as businesses seek to navigate a marketplace made up of different national currencies with dynamically fluctuating values. For traders, this difference in value, called the spread, offers opportunities that they attempt to exploit to their advantage.
Because of the fast-moving nature of the money trading market, it is imperative that one have a money trading account online that keeps one abreast of the rapidly changing market dynamics. Because of the sensitive nature of money trading, it is imperative that one find the right broker and fulfill all the KYC requirements before beginning money trading. Opening a trading account online with a reputed broker is a simple process involving filling up an application form and submission of required KYC documents.