Many prospective forex traders in India have trouble clarifying legalities and requirements regarding trading in foreign exchange. So, to help one make well-informed decisions about trading, it is essential to know both the positive and negative aspects of the forex market.
The forex market trading in India is regulated by the Reserve Bank of India and the Securities and Exchange Board of India. It is an activity allowed only for some specific people and organizations under clearly stipulated terms. One should understand who can legally engage in the activity and what rules apply.
In this blog, we will see Who Can Do Forex Trading in India (2024)?who in India can do forex trading in 2024 under the legal provisions and limitations? We will also highlight the benefits of the forex market trading and also drawbacks of forex market trading.
There is very high liquidity and a potential for significant profitability, and we will show the other side of the coin: volatility of the market along with associated risks, leading to possibly huge losses. All this, and much more, is something that the report would be able to bring to you, and this should guide you through the process of regulation setup and many more advantages and disadvantages that one needs to keep in mind while working in a forex market in India.
Who Can Do Forex Trading in India (2024)?
- In the Forex market, the first participants are such international businesses that do money movement in the markets. For example, an Indian company that provides its goods and services in the US, will naturally be involved in the structure of the Forex market because, in their business, there will be an exchange between dollars and Indian rupees.
- In the Forex market, the second participant is the retail traders who exchange their own money to book profits. The portion of retail traders is increasing rapidly in the Forex market because all those consumers who buy or sell currency for luxury, travel, and educational purposes come under this segment.
- The third and most important participant of the foreign exchange market is the central banks of any country, which is a part of the currency exchange system from the beginning of the Forex market. RBI and US Federal Reserve, like central banks, to maintain the country’s economic stability, through currency exchange, regulate money supply, interest rates, and inflation.
For example, if the value of Indian rupee is declining in the Forex market, then RBI can take a decision to sell some portion of its foreign currencies from its Forex reserves. By doing this, the supply of that foreign currency increases in the market and eventually its demand also starts to decrease.
And due to this, the downtrend of Indian Rupee also stops. As an individual, you also get to see many advantages in the Forex market.
The foreign exchange market, widely known as the forex market, provides many benefits to all its participants. Below is an enumeration of some benefits:
Benefits Of Forex Market Trading
The foreign exchange market, widely known as the forex market trading, provides many benefits to all its participants. Below is an enumeration of some benefits:
Flexibility:
- Forex is tradable 24 hours a day and through the week for five days.
- There is no dictation or boundary on traded money; hence, there is no limitation in the amount one has to exchange, which makes it possible to trade for all classes of budgeting.
- The forex market remains unregulated mostly; hence, flexibility in trading is primarily embraced.
Trading Options:
- A trader can trade in hundreds of available currency pairs, providing maximum trading options.
- Futures contracts are available in every denomination and maturity to suit all traders.
- The market liquidity is unrivaled, with high-speed entry and exit for the traders.
Low Transaction Costs:
- Forex trading has relatively lower transaction costs than most other markets.
Leverage:
- Forex markets offer leverage, and sometimes leverage can be high, amplifying both profits and losses.
Quick Returns:
- The forex trading profits realized from profitable positions can, depending on the forex broker used, be made available right away.
Ease of Going Long or Short:
- Unlike in some stock markets, there are no uptick rules to prevent you from going short; hence, you can buy or sell currency pairs with so much freedom.
High Liquidity:
- The forex market is the most liquid capital market. Since the central banks interfere with the markets in their country’s national currency, it’s less likely that a market manipulation event will happen.
Lower Likelihood of Market Manipulation:
- The forex market is so huge and deep that it becomes nearly impossible for anyone, including many hedge funds and large corporations, to engineer such a vast market.
Drawbacks Of Forex Market Trading
Surely, there are benefits of forex market trading, but it does have some of drawbacks as well and they are as follows:
Counterparty Risks:
- No Centralized Exchange operates in the Forex market that would guarantee the riskless execution of the investor’s and trader’s trades. The trader must be aware of the risk of default where the counterparty may not fulfill the contracts.
Leverage Risks:
- High leverage can accumulate massive losses if the trades turn against the trader.
Operative Risks:
- Forex trading operations can be quite burdensome to handle, especially for traders who are not at their desks.
Volatility:
- The forex market is also very volatile, making it hard for traders to predict the price of some products.
Weaker Regulatory Protection:
- The forex market is mostly unregulated, which implies that traders have a small basis of recourse if they feel unfairly treated by their brokers.
Fewer Residual Returns:
- Forex transactions are mainly based on the capital gains of currency value increase, which can be less than other assets producing residual return through dividends and interest payments.
In general, forex has a more flexible, accessible trading environment with a wide range of different options. But that’s also where the significant risks and, thereby, challenges tend to lie for the trader.