Wednesday January 27, 2021 - 12:05:50 GMT
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Why Traders Prefer Forex Trading in India
Since the Covid-19 pandemic caught the world by surprise in 2020, many people have started looking online for a job replacement income. Forex trading is one that has gained huge popularity in recent years, and social distancing measures that put people at home have only boosted the interest more.
There are many reasons why people prefer trading over other online business. For first-timers, it has a low start-up cost - about $100 USD - and you get to trade 24 hours a day and 5 day week, which provides huge flexibility to people who have a full-time job.
Some people will take up freelancing jobs such as writing and graphic design while doing online trading during idle time. That said not all asset classes allow you to do that. For instance, the stock market operates from 9 AM to 4PM daily on weekdays, which make trading difficult for someone who is fully employed.
Below I will discuss three other factors why Indian traders prefer Forex trading:
Low Trading Cost
Trading costs if not handled well will eat into your profit. Most stock brokerages charge a minimum fee for utilizing their platforms and tools. On top of that, you have to pay clearing fees to the exchanges as well as GST. Most Forex brokers do not charge a transaction fee, at least not outright. The way they charge is through their bid-ask spread, hence it is important to know the average spread of the currencies you are looking to trade to avoid paying too high a fee to brokerages.
Directional Trade - Long and Short
For traditional asset classes like stocks, you can only long - meaning betting the right upward direction of the price. It limits your trading option and you may lose out critical trading opportunities. Most stock exchanges restrict people from shorting - betting on drop in prices because it hurts the company valuation.
But that doesn’t mean that it is impossible to short stocks, it just means more cost involved. There are online trading platform that allow share borrowing facilities to allow their clients to borrow shares for shorting purposes. If longing is to buy and then sell; then shorting will be to sell first and then buy.
Here is how it works: first, suppose you are looking to short at $10 i.e betting that it will go down, and since you do not have any shares, you must borrow the share first. Then you sell the borrowed share at $10. After some time, regardless of the eventual share price, you will have to buy back the stocks for returning. Suppose the stock fall to $1, you would have made $9 as you have first sold it at $10 and then bought it at $1.
Since the shares were borrowed to facilitate the short, you would have to pay borrowing fees depending on the period of holding.
Forex, on the other hand, does not have this issue. The nature of the trade is inherently bi-directional, meaning when you long INR/USD, you are buying INR and selling USD. You can also do it the other way which is shorting INR/USD by selling INR and buying USD, or you can see it buying USD with your INR.
Most liquid market
Unlike the conversation wisdom that the stock market is the biggest in the financial world. The fact is the Forex market dwarfs the stock market by 25 times. The average daily Forex trading is estimated to be a whopping $5 trillion dollar. It matters for traders because you need liquidity (volume) to make speedy transactions whether buying or selling. Lack of liquidity creates friction to both sellers and buyers, and widening the gap between bid and ask.
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