Get a complete guide on how to start forex trading in India, Forex rules, Best forex broker list, how to be a successful trader, And what is minimum amount to start forex trading.

Foreign exchange is the biggest market in the world where all the currencies of the world are traded. If we focus on forex trading in India then certain things arise in our mind, Is forex a legal asset in India? what is the rule for forex trading, Is it regulated by any Indian Government authority like RBI Or SEBI. I mean mostly users asking is forex trading is legal in India YES, Or NO.

forex trading in India

Attention please Forex trading is a legal asset in India but only within predetermined rages decided by RBI and SEBI. Its means forex trading is regulated and legal in India only with few terms and condition.

So if you want to trade in the forex market then you most need to fulfill certain regulations under every circumstance.

Basic of Currency/Forex Trading in India 

There are too many bodies that participate in forex trading in India like 

—Bank and financial institution for regulatory purposes
—Private Company and firm for managing risk on the buy and sell orders,
—Traders for speculative purposes
—Traders for speculative purposes
—Traders for speculative purposes
—Travellers for expenses incurred in traveling in various countries.

We know all Currency is always traded in pairs. like USD/ INR, GBP / INR, etc.
There is a fixed and standard format in which currency pairs are mentioned for trading:

  • Base Currency / Quotation Currency = Value
  • The base currency is fixed to 1 unit of currency like 1 USD, 1 Indian Rupee, 1 Euro, etc.
Quotation Currency refers to the other currency which equates to the base currency.
Value refers to the value of the quotation currency against the base currency.


For example, USD/INR = 79.75 means that 1 unit of the base currency, that is GBP in this example is equal to 79.75 units of the quotation currency, that is INR.
A majority of the Forex brokers in India allow their customers only to trade in INR related currency pairs.

How forex trading work in India 

As you know forex trading is the world's biggest market where more than 5.1 trillion transactions occur. And it is also a very popular asset in India, today lots of people start trading in Forex in India, That's why I choose this topic to write, Let's see how forex trading work in India with an example,

Let’s move ahead and try to understand the basic concept of forex trading in India with the help of an example. For example, Today USD is trading at ₹74 valuations.

Suppose there is news in the Market that in the upcoming day RBI(Reserve bank of India) is going to decrease the interest rates.  this news will directly impact the valuation of India's currency and maybe Indian currency value go lowest.

Based on this news you have chosen to buy a 1000 units INR/USD Pair( At the current price of ₹ 74). And in the upcoming week the USD trade at ₹78, Now due to this specific new impact you were able to make ₹4000.


Similarly, let’s assume that in the latest financial year, the Government of India posts a lowered inflation rate. This will appreciate the value of the Indian Rupee and there is a possibility of its value going down to let’s say, an exchange rate of ₹69. You could have shorted the trade at ₹73 with 1000 such units and again made a profit of ₹4000.

Currency trading in India is good for the Indian economy if you look at the overall volume turnover, the size of trading, and corresponding frequency.

Before you jump and talk about the rules, let’s have a quick look at some of the facts around Currency Trading in India:

—The trading hours for currency are from 9 am to 5 pm on weekdays. and forex market opens 24 hr. and 5 days a weeks.
—There is no need to open any Demat Account for currency trading. A trading account is good enough!
—Currency trading is only allowed at Derivative level.
—Delivery trading in currency is NOT allowed.

Factors Impact on forex trading in India

There are some important factors that impact the value of Indian currency directly or Indirectly in the overall exchange system.

Factors Impact on forex trading in India


  • Inflation: Lower Inflation, ₹ Appreciates
  • Interest Rate: Increased Interest, ₹ Appreciates
  • Current Account Deficit: Lower deficit, ₹ Appreciates
  • Public Debts: Lower Debts, ₹ Appreciates
  • Terms of Trade: Positive Trade Balance: ₹ Appreciates
  • Political Stability: Stable government, ₹ Appreciates
  • Exports: Increased Exports, ₹ Appreciates
  • RBI Selling off USD: ₹ Appreciates

CURRENCY TRADING IN INDIA RULES

Now, let us go through some of the rules of the regulatory framework set up by the SEBI and the Reserve Bank of India, with the Foreign Exchange Management Act for currency trading in India.

Currency trading in India is legal only with SEBI approved and registered brokers. Trading in currency derivatives is permitted only on the exchanges recognized by the RBI and SEBI since 2008. Currently, there are three recognized exchanges in India – The National Stock Exchange (NSE), the Metropolitan Stock Exchange of India (MSE), and the United Stock Exchange (USE).

Originally, the only allowed currency pair for futures trading was INR/USD. Later, more pairs were introduced for trading. Currently, trading in derivatives of Dollars, Great British Pound, Euro, and Japanese Yen is allowed in India.

Currency options are available for trading with underlying as USD/INR spot rate
The lot size for futures is 1000 per unit (for Dollars, Great British Pound, Euro) except for the JPY/INR pair where the lot size is 100000 units.

There are two types of trading in the Forex market, 1. Future 2. Option. Futures are ranging from 1 month to 12 months while for options, it is 3 months. and all contracts open in markets are neet to settled only in Cash.

If you trade with margin brokers then you need to deposit an initial some amount, the margin is generally 5% of the contract value. But remember the margin can be changed by the bank depending on the market volatility.

Currency trading in India is a legal asset but only if you trade with registered brokers, While trading with international brokers without permission of the Indian authorities is strictly against the law. 

How Currency/Forex trading works? and how much you can earn in a day trading?

Now let's understand how currency trading work in India and how much a forex trader earn a day.

Example

Suppose the current spot price for USD/ INR is 74.5. A trader anticipates that the USD will appreciate further with respect to INR and therefore, takes his position on 10 lots of the currency pair accordingly. Now let us see how much money would he make per pip in this currency pair.

Profit per pip = Lot size * Pip
= 1000 * 0.0025
= 2.5

Therefore, for every pip or tick movement, the trader will earn ₹2.5.
Now, suppose the price of the currency pair rises to 67.59. Total number of points that rose = 67.59 – 67.50 = 0.09
Number of pips that the currency has moved = Number of points/pip size
= 0.09 / 0.0025
= 36

So, the Profit made by the trader = Lot size * number of lots * number of pips * tick size
= 1000 * 10 * 36 * 0.0025
= 900

Thus, we see that a profit of ₹900 is made by the trader in a single day when the value of the currency pair moved from 67.5 to 67.59.

If the price of the currency does not move in the anticipated direction, the trader can carry this trade forward till expiry, provided he manages to deposit the required margin amount.