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Indian forex trading

India has been one of the fastest growing economies in the world second only to China and along with all forms of trade forex trade has also gained popularity. There has been growing interest in forex trading and the trade is strictly regulated by the various institutions such as the Reserve Bank of India.

Let us look at some of the provisions governing the trade in detail in order to get a better understanding as to how the forex trade is done in India. The forex products that are available for trade are currency forwards, swaps and options. They products hedge the currency risk and are traded at what is known as over the counter.

Any person resident in India is allowed to trade subject to the guidelines emphasized in Currency Futures (Reserve Bank) Directions formulated in the year 2008.

The trade is primarily done in U.S dollars and Indian rupees and any other currency as may be notified by the Reserve Bank of India.

There are some unique features of the currency future that one need to look at. First and foremost is that the size of the contract done shall be $1,000.00 (one thousand U.S dollars). All the contracts will be quoted and settled in Indian rupees.

The maturity period of the said contract must not exceed 12 months and the settlement price that is fixed is done based on the Reserve banks reference rate on the last trading day.

The Reserve bank is also quite strict in the interpretation that only a person resident in India or banks authorized to act on behalf of their clients to do so can trade in forex instruments.

In order to trade one need to become a member of a recognized stock exchange and a separate account needs to be opened for this purpose. The regulations of a separate regulatory authority known as SEBI (Securities and Exchange Board of India) will apply with regard to opening of an account and trading in it.

Margins specified by SEBI have to be maintained by the people trading in Forex at all times and these margins are calendar spread margins. Proper disclosures regarding the trade have to be done at all times and this ensures transparency.

As the Indian currency is still closely regulated there is not a great amount of volatility. It is more of controlled market in a sense that most external conditions do not affect the market much. The most important factor that has any sort of bearing on the trade is the guidelines that are framed periodically by the Reserve Bank of India.

Forex trading in India is still said to be in the infancy stage as the market with regard to the trade is still regulated considerably. There are tremendous opportunities in this sphere of trading and as more and more people participate in this it will gain more acceptance as a viable form of investment and an alternative to the conventional forms of investing.

The regulatory authorities in India are looking at ways to simplify the entire process of forex trading and with the market been less regulated in the coming years there is a huge potential waiting to be tapped.