Step by Step Guide to Start Forex Trading

By | May 5, 2024

Demat account is not required to start forex trading in India as you won’t get delivery of forex in your account at the end of the day.

All the trades are cash-settled. You need only two accounts, a forex trading account, and a bank account to start forex trading in India.

How to Do Forex Trading in India 2023

Forex trading can be done either by buying and selling currency pairs or by purchasing derivatives such as options and futures. Both of which is quite similar to equity trading.

#1. Buying and Selling

In simple buying and selling currency pairs, you are long on the pair with a belief that the value of the pair goes up and you benefit in the process.

For example, let us assume you purchased a GBP/USD pair at 1.2936. You will profit if the value increases to 1.2937 and above and lose money the moment the value decreases to 1.2635 and below.

The pair rises when the GBP increases in value against the US Dollar.

#2. Using Derivatives

The other way to trade in forex is to use derivative on the currency pairs like futures and options.

Buying a futures contract creates an obligation to buy the underlying currency pair at a set point in a future date. Whereas purchasing an option on a currency pair gives you the right to purchase the currency pair at a set rate before a set point in a future date.

In options, you are purchasing the rights and need to exercise it or let the right expire before the set future time and date.

Derivative products can be a bit complex in the beginning but you should understand the basics to start trading.

Types of Forex Trading Orders

Now that you know the forex trading, it will be handy to know various types of orders which can be placed.

#1. Market Order or a Limit Order

This is the very first order to open a new position which can be a buy (long) or sell (short) position. Now you have two choices

Market Order

To take a position at whatever exchange rate currently available in the market which is called the market order.

The market order is executed immediately at the exchange rate currently available.

Limit Order

Another way is to set the rate at which you want to buy or sell which is called the limit order.

Limit order gets executed when the rate comes to a predefined limit.

#2. Take-profit Order

For an open position, a trader may want to lock profits which can be done by placing a take-profit order.

For example, a trader is optimistic that the GBP/USD will touch 1.2940, but not very certain of the rate moving any further. In that case, he can place a take profit order and lock in the profits.

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The take-profit orders also get executed when the rate reaches the predefined set limits. It may be possible that the rate may move further ahead or may not reach the limit to get the order executed.

#3. Stop-loss Order

The stop-loss order is just the opposite of take-profit order, where the trader restricts losses.

For example, you take a long position in GBP/USD at 1.2936 and know that the maximum losses which you can bear are of 3 pips. In such a case you can place a stop-loss order for closing the position at 1.2933.

Stop-loss order restricts the losses in case the rate moves further down.

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