The currency market includes the Foreign Currency Market & the Euro Currency Market. Various countries’ currencies are traded in Currency Market. The Foreign Currency Market is virtual. There is no one Central physical location that is the Foreign Currency Market. The Foreign Exchange Market (forex, fx or currency market) is a global decentralized or over the counter (OTC) market for the trading of currencies. This market determines the Foreign exchange rate.

It includes all aspects of buying, selling & exchanging currencies at current or determined prices. In terms of trading volume, it is by for the largest market in the world, followed by the credit market.

Trading on Foreign Exchange Market establishes rates of exchange for currency exchange rates are constantly fluctuating on the forex market. As demand rises & falls for particular currencies, their exchange rate adjust accordingly. A rate of exchange for currencies is the ratio at which one currency is exchanged for another.

Future trading happens in currency market. Currency options have been started in USDINR. Currency market trading is conducted on two exchanges viz MCX-SX (multi commodity exchange) & NSE (National Stock Exchange). We an do trading in four important pairs in India USDINR, EURINR, GBPINR & JPYINR. Daily turnover of currency market is more than 10,000/-cr. Market timing for this segment is Monday to Friday from 9am to 5pm.

USDINR is known as pair currency, in pair currency first factor is known as base currency & the second is known as term currency. We pay term currency & buy or sell base currency. We require very less margin in this & if we get 10ps movement also we get Rs.100 profit & if it raises by Rs.1 then the profit is 1000/-. In India USDINR has major volume.

ADVANTAGES OF CURRENCY MARKET 

1.  24 HOUR OPEN MARKET:

                                             The foreign market is worldwide. There is no waiting for the everyday opening bell. Trading starts when the markets open in Australia (Sudney session) on Sunday evening & ends after markets close in NEW YORK on Friday.

This is fabulous for those who would like to trade on a part- time basis because you can choose your own time for trading: morning, afternoon, night, during breakfast, lunch, dinner or in your sleep. An individual can view the current market trend & get updated anytime.

2.  TRANSACTION COSTS ARE LOW:

                                       The cost of a transaction is typically built into the price in forex. It’s called the spread. The spread is the difference between the buying & selling price. The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market condition. For larger transaction, the spread would be is low as 0.7%. Of course this depends on your leverage.

3.  PROFIT POTENTIAL FROM BOTH RISING & FALLING MARKET:

The foreign market has no restrictions on trading direction. That means, if you think a currency pair is going to increase in value, then you can buy it or go long. In the same way if you think it could decrease in values, then you can sell it or go short.

In either case, if your trade goes right then you make profit.

4.  VERY HIGH LIQUIDITY:

Because the size of the foreign market is so large, it is extremely liquid in nature. It means that under the normal market condition you can insanely buy & sell currencies as always there will be someone in the market willing to accept the other side of your trade.

Liquidity is the ability of an asset to be converted into cash quickly & without any price discount. In forex, this means we can move large amounts of money into & out of foreign currency with minimal price movement.

5.  NO COMMISSION:

No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail broker are compensated for their services through something called the “Bid / Ask Spread”.

6.  INDIVIDUAL CONTROL:

One of the main & fundamental advantages of having a career in foreign trading would be that the individual himself has complete control with respect to making a trade.

The individual who is involved in the foreign trading business always has the final decision in their hand whether they would like to enter in making trade & how much risk the trader is willing to take with respect to earning his money.

DISADVANTAGES OF CURRENCY MARKET

1.  HIGH VOLATILITY:

                                The high volatility characteristic of the forex trading can either be an advantages or disadvantages.

The changes in the global politics & economy drastically changes the forecast & diagram about the forex market thus it makes risk & invest money.

It can cause a huge loss to the investors if the market goes down hill & when a loss is incurred a huge amount of money will go as a loss.

2.  LOW TRANSPARENCY:

This is one of the biggest disadvantages of foreign exchange market. Due to the decentralized & de- regularized nature of the foreign exchange market, it is dominated by brokers. And you actually have to trade against professionals.

A trader might not have any control over how his trade order gets fulfilled, but you may not get the best price or may get limited views on trading quotes as furnished be your selected broker.

3.  NO CENTRALIZED EXCHANGE:

Unlike stocks or futures the spot forex market does not have any centralized exchange or clearinghouse. Alternatively, each broker acts as its own exchange & the broker effectively becomes the market maker.

When dealing reputed brokers in well regulated countries these differences will be small but you need to be well aware of this fact especially if your charting data provider is not the same as your broker, as this may lead to inconsistencies between the planned & actual execution of trader.

4.  RISK FACTOR:

There is a risk factor involved in forex trading market. There is a high leverage which results in higher risk involved.

There is uncertainty of the price & the rate of the currency which ultimately give higher profit or a huge loss so one has to be very focused & knowledgeable about the foreign exchange market where future forecasting can be accurate & profitable.

There are 10 major reason why the currency market is a great place to trade:

1. You can trade to any style – strategies can be built on five minute charts, hourly charts, daily charts, or even weekly charts.
2. There is massive amount of information – charts, real – time news top level research – all available for free.
3. All key information is public & disseminated instantly.
4. You can collect interest on trades on a daily or even hourly basis.
5. Lot size can be customized, meaning that you can trade with as little as $500 dollars at nearly the some execution costs as account that trade $500 million.
6. Customizable leverage allows you to be a conservative or as aggressive as you like (cash on cash or 100:1 margin).
7. No commission means that every win or loss is clearly accounted for in the P & L.
8. You can trade 24 hours a day with ample liquidity ($20 million up).
9. There is no discrimination between going short or long (no upstroke rules).
10. You can’t lose more capital than you put (automatic margin call).

Also Read | Risk Reward Ratio in Stock Market