H e had an ideal, high-paying managerial job at 23 and did not need to give it up for what is generally seen as a high-risk business. Yet, Dayanand Gupta quit his job and ventured into foreign exchange trading. The move paid off and two years later, today, Gupta is successful, with a grip on the fundamentals of the business.
Many prefer to stay away from forex trading, the largest financial market globally. Like the commodities' market, the forex market trades round the clock.
Forex trading, simply, is exchanging one currency for another. Most are traded against the dollar. Other highly traded currencies are the euro, pound, yen, Swiss franc and Australian dollar. The first currency quoted in a currency pair on forex is called base currency, which is generally the domestic currency.
The second currency is called the quote currency and is typically the foreign currency. For example, if you were trading in rupee-dollar, rupee would be the base currency and dollar the quote currency. The price shows how much quote currency is needed to get one unit of the base currency. In this market, the volume of trade is expressed in the base currency. In a , rupee-dollar trade, , is the face value and is a standard contract or a lot.
No matter which currency you have in your account, the trading software automatically sets the exchange rate. The profit or loss in trade is expressed in the quote currency, as the currency pair price is given in it. For instance, if you buy euro-dollar at 1. A pip is the smallest measure of price move on an exchange. Each trade has two prices - bid and ask. The bid price is the rate at which the broker buys and you get on selling. The ask price is the offer price at which the broker sells and you pay to buy.
The difference between bid and ask price is the spread broker's profit. In a euro-dollar trade at 1. On trading , euro-dollar, the broker earns , x 0. If the currency pair rises 10 pips from 1. It's not a great deal for you; worse for your broker. Thirty cents will hardly justify his salary. Ergo is the concept of leverage financing, where a trader deposits only a presumed risk margin and the rest is provided by the broker. Margin requirements vary from one to five per cent, depending on the broker.
The margin corresponds to a The flip side -- if the price falls one per cent, your entire capital is lost.
On opening a trading position, you can designate a part of your capital as collateral on your margin, which will be set aside and protected. But, if the rate declines to 1. Some losses are inevitable for any trader. However, the key is to limit losses by using stop-loss and controlling risk.
If you set a limit order, you would have realised the potential profit without having to monitor the trade closely. The risk factors are more complex here. Any change in macroeconomics is a big hazard, adds Brahmbhatt. Rekha Mishra, senior research analyst, Bonanza Portfolio, concurs: One should follow certain ground rules here in order to manage risk. Skill to anticipate can be honed only by experience over a period of time.
Despite being a hour market, all hours may not be equally beneficial for trading on forex. You may plan your trading to catch the highest trading hour s to maximise profits. Freshers can take small exposures till they gain confidence. NewsApp Free Read news as it happens Available on. PE players all set to bid for stressed assets How IndiGo trains its crew to keep flying high Saregama strikes the right notes Ayurveda with an allopathic twist How TVS will ride up from budget to premium market.More...