While forex trading in India was once a niche market, the landscape has changed dramatically. Recently, the Reserve Bank of India confirmed that India’s foreign exchange reserves rose from $601.2 million (₹49.7 billion) to $708 million (₹58.5 billion). The foreign currency assets affect the impact of non-US currency units like the euro, pound, and yen, consequently impacting India’s foreign exchange traders’ ability to make profits. Due to India’s burgeoning economy and increasingly tech-savvy population, the country has become an essential part of the global forex market. A 2021 report from The Economic Times indicated that approximately 15% of the country’s Internet-using population was involved in forex trading.
Of course, the influence of forex trading extends beyond just individual traders. Forex trading can also significantly benefit India’s financial literacy, promoting investment culture and indirectly contributing to better economic growth. With more Indians showing interest in forex trading, it’s interesting to consider its potential impact on global economies, market trends, and risk management practices. For beginner investors and forex traders, this post will be a guide to what forex trading is, how you can get started, and some tips and tricks to ensure a secure and profitable trading experience:
What is forex trading?
Forex, or foreign exchange, involves the buying and selling of foreign currencies. People exchange one currency for another for various reasons, including commerce, trading, and tourism. Because of its many use cases and global reach, forex markets have become one of the world’s largest and most liquid asset markets. One of the most attractive aspects of the international forex market is that it lacks a central marketplace. Instead, currency trading is conducted electronically instead of on a centralized exchange.
While forex trading is legal in the country, new forex traders need to understand taxation clauses for forex trading in India to avoid getting in trouble. Recently, the Central Government has announced an increase in the percentage of tax collected at source from 5% to 20% on foreign transactions. Similarly, in consultation with the Reserve Bank of India, the government has implemented new foreign exchange management rules. The new rules state that credit card transactions are now included within the scope of the $250,000 limit prescribed under the Liberalized Remittance Scheme. This means that all authorized brokers dealing in foreign currency or foreign securities are liable to collect the 20% tax collected at source from buyers remitting such an amount of foreign exchange outside India.
How to get into forex trading
Technology has made starting on the forex markets much easier, as you can work on these from your smartphone or computer. Traders should use a reliable online forex trading platform to get started. These trading platforms provide traders access to the global forex market, where they can trade the world’s most popular currency pairs with better-than-market conditions. With access to over 100 currency pairs, traders can make the most out of platform features that help ensure security. This includes stop-out protection, a unique market protection feature that allows traders to strengthen trading positions against market volatility to delay or avoid stop-outs.
As forex trading becomes increasingly accessible and convenient, it’s essential to consider the security precautions you should take to ensure your personal information, data, and finances are always secure. These days, experts recommend forex trading on a virtual private server to improve speed and reliability. As the forex markets are known to be volatile, increased speed can give you an advantage when buying or selling without having to worry about latency problems. Virtual private servers (VPS) also offer reliability in case of power or Internet outages and hardware issues. With a brokerage-provided VPS housed in a safe data center with backup servers and power generation, traders can execute trades quickly and securely when needed.
Tips and tricks for aspiring forex traders
Finally, knowing what, how, and when you are trading in the forex markets is essential. After all, forex trading is a form of investment, and the slightest mistakes can lead to unwanted financial losses for you. In a previous post on trading mistakes, we highlighted how beginner traders are especially prone to fall victim to common trading mistakes. By learning and understanding these common mistakes, traders can improve their decision-making and trading strategies to boost their chances of making more profit.
One of the most essential tips for beginner traders is to have a well-defined trading plan before diving into the markets. Without a plan, traders are likelier to commit no-nos, such as emotional and impulsive trading. These are trades based on hasty and irrational decisions that can cost you potential profits in the long term. Developing a comprehensive trading plan that fits your trading style and risk appetite will provide a better guideline for what to do during market fluctuations.
Similarly, be careful not to overtrade by executing excessive trades. While the promise of quick profits can be tempting, overtrading can lead to higher transaction costs, increased risk exposure, and even emotional exhaustion. Following our previous tip, you must stick to your predetermined trading plan and exercise patience when waiting for advantageous trading opportunities.
The Reserve Bank of India (RBI) has issued cautionary statements regarding the potential risks associated with cryptocurrency trading. Furthermore, the RBI has prohibited banks from engaging with cryptocurrency exchanges. Nevertheless, these advisory notifications and regulations have predominantly revolved around cryptocurrencies, leaving a lack of explicit directives concerning the legality of alternative forms of online trading platforms.
In light of this situation, it is advisable that individuals who possess an interest in any variety of online trading platforms in India pursue expert legal and financial counsel to ensure adherence to all pertinent laws and regulations. Moreover, it is imperative to diligently research any trading platform before its utilization and to exercise prudence when making investments in financial instruments. Please note that this article is intended for informational purposes only and should not be construed as financial advice.