The currency market is the largest and most liquid financial market In this market, one country?s currency is exchanged for that of another at a fixed price. With the advancement in technology and increased globalization, it is now possible for individuals, corporate entities, governments and almost anyone to take part in online currency trading. It offers two advantages to the traders: an opportunity to benefit from currency value fluctuations, and a chance to minimize loss from currency value fluctuations due to various factors. Currencies are traded in derivatives, specifically in futures and options. Here?s more about these methods.
Futures
Through Ez Wealth, you can trade in currency futures on the National Stock Exchange (NSE). Futures trading allows you to enter into a contract (having a maximum period of 3 months), and take buy/sell positions in a currency of any country.
Trading in futures is not as complex as it sounds. If, during the contract period, the price moves as you had anticipated, you make a healthy profit, and vice versa.
Options
An option is a contract between two parties (the seller and the buyer) that gives the buyer the right to buy or sell shares at a specific price, on or before a particular date. There is no obligation on the buyer to complete the transaction if the price is not favorable to him. For this, the buyer has to pay to the seller some money called premium.
To carry out a transaction (buy/sell) position on Index/Stock options, one has to pay certain percentage of the order value as margin. There are two types of options: Call and Put. The former allows the trader to buy the underlying asset at a certain price, while the latter allows him to sell it at a certain price.
Key Participants In The Currency Markets Are
- Corporate/small and medium enterprises (SMEs)
- Authorized dealers/banks
- Central bank ? The Reserve Bank of India
- Individual retail traders
- Risk reversal – simulates the motion of an underlying so sometimes these are referred as synthetic long or synthetic short positions depending on which position you are shorting in.
- Money Changers
Key Reasons For Currency Movement
- Trade and capital flows
- Imports by oil marketing companies
- Remittance by NRIs
- Investment by offshore institutions in India
- Indian offshore investments
- Foreign Direct Investment (FDIs) and Foreign Institutional Investment (FII) flows
