How to do online forex trading

Forex trading is one the most attractive trading instruments available to  investors and traders in recent days. Earlier transactions in forex market could be done  by banks, companies engaged in export and import, students visiting foreign countries, international travellers,etc... After the introduction of trading in currency derivatives at an exchange, forex trading could be done in the form of Futures and Options. .  Exchange-traded currency derivatives are standardized and cash settled contracts.. This makes forex trading convenient and counter guaranteed. . 

Advantages of Online Forex Trading

Low cost: When compared to  trading in other segments,  such as stocks and commodities, one of the major advantages of forex trading is the low cost. You don't need much money to  take position in forex trading. Margin requirement in currency pairs is quite low, often in a range of 3% to 5%. Lower margin provides higher leverage..

Longer Trading Hours: Forex trading at an exchange could be done  from 9.00 AM to  5.00 PM. Compared to equity segment, an additional window of ninety minutes is available in currency segment. Trading in equity segment is available till 3:30 PM.. One can take advantage of this additional trading window by allocating funds in the currency segment either from the trading account or unutilized amount in the equity segment.

High liquidity and a great market: Since margin requirement in currency pairs is low, a large number of traders participate in the currency segment. This provides liquidity and depth in the currency derivatives segment. High liquidity provides an easy entry and exit from the market with low impact cost, i.e. bid ask spread is usually thin in most of the active contracts in currency pairs at an exchange. 

Simple to Use: One of the major concerns for any novice and seasoned trader would be the simplicity of trading in derivative instruments. When we consider trading in currency derivatives segment, it provides the feature of simplicity as the prices of currency pairs are affected by relatively few factors like global supply and demand, geo-political factors, etc. This makes it easy to retail participants to understand the movement in the prices of currency pairs... Further, requirement of lower margin , say 3% in USDINR and approximately at a similar percentage in other INR pairs, makes trading in currency pairs simple and easy to enter for a retail trader. Assuming one USD @ Rs 75, for one lot of USDINR, margin requirement could be Rs 2,250. Please note, exchange rate of USDINR and other currency pairs may change from time to time. 

Fewer Products: In currency derivatives segment, the range of products available for trading at an exchange is limited, i.e. around seven to eight currency pairs in both Futures and Options. While it could be seen as a limited basket of products, at the same time it could be appealing to those traders who want to focus on limited products only, for e.g. only on USDINR or EURINR.

Selection of broker

The type of services provided by a broker, as well as the type of transaction that a person desires to conduct, play a big role in a broker selection. Following are the major criterias, you may need to consider while selecting a broker:-

Credentials

Any brokerage firm that handles your money should  have a solid track record. Your broker should  be a well-known name in the industry.. Choosing a fly-by-night operator may  result in an irreversible financial loss. , Look for successful brokers so that your margin deposits are safe . A stockbroker with a proven track record and credentials, along with an excellent customer service, is a prerequisite for any investor or a trader.. 

Trading Platform

A broker's trading platform should be state of the art  and user-friendly to carry out a seamless transaction. It would be add on if the trading platform could be further customized as per the requirements of a trader, for e.g. availability of APIs to a trader willing to trade in derivatives segment with complex strategies. The trading platform should a featured rich platform offering all important features like Stop Loss, Order Modification, Limit Order facility, etc. Many trading platforms provide interactive charting tools and related features also. .

Research Support

Brokers, particularly the  full-service brokerage firms in India, provide  research services in which the research team provides  research calls on both intraday and positional calls. . They also publishes reports about broad and micro factors affecting different asset classes available for trading. It is advised to take a reference of these research reports and calls before taking any trade in any segment..

Customer Support

A very important feature while  choosing a good stockbroker is customer support. Today, brokers provide customer service via a variety of channels, including online customer support, relationship manager services for trading assistance, and branch services. Some provide support in the form of   branch services and dedicated RMs only while other brokers may offer all types of customer support including online support also. . Evaluate a broker on the basis of an offering and your requirement. A good customer support service may make trading smoother and convenient. .

Word of Caution :

The Reserve Bank of India vide circular dated 3rd February 2022, cautioned the public not to undertake forex transactions on an unauthorized Electronic Trading Platforms or remit/deposit money to such  unauthorized platforms.. It is advised to keep checking SEBI and exchange websites for an update on investors’ information and knowledge updates.

Also Read: What are the Pros and Cons of Online Forex Trading?

Summary

In conclusion, forex trading could  be an enriching experience  However it should be kept in a mind  that it is subject to market volatility . It is best to be aware of basic features of a trading platform, trading requirements and an understanding of an underlying asset, i.e. currency market and derivative instruments before start trading in currency derivatives segment.

Disclaimer – ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.