Export-import businesses are linked to currency values. If your trade is focused on the Indian market, you must be curious about this currency pair’s trends and specificities. This article will provide you some useful insight regarding Forex USD/INR trading.
The forex market is international and decentralized, with many trading platforms all over the internet. It allows you to trade not only in USD. Major currency pairs are, for example, EUR/USD, JPY/USD, CHF/USD. When it comes to the USD/INR trade, it is also very popular but more exotic compared to USD/EUR. If you are an Indian trader, you will probably consider pairs such as GBP/INR, EUR/INR, USD/INR, JPY INR. These are benchmark currencies vis-a-vis the Indian Rupee.
Given the volume of exports and imports between the USA and the Indian market, this pair’s value is considerable. As a Forex trader, you can take a big advantage of its value fluctuations.
The basics of Forex pairs trading
As we said, the Forex trading is done in pairs. The first currency in pairs, in our case USD, is the basis, and INR is the quote currency. If you trade USD/INR, you expect the value of the pair to go up.
What impacts currency pair prices?
Typically, any significant economic events. Since two currencies are involved, any major events on the US or Indian market or some political level will cause price movement.
Another term linked very often to currency trading is ‘pip’. What does that mean? It is a fundamental unit in foreign exchange trading. When the Reserve Bank states reference rates, the quote is still the 4th decimal point. The tiniest variation at this fourth point can create a big difference in foreign reserves. All over the world, the currency is quoted until the 4th decimal point. It’s called PIP, which means the point in percentage. The pip for USD/INR trading is fixed at 0.0025. It is also called tick size. Regarding the lot size, it usually amounts to USD 1,000.
Trading USD INR options in the derivative market
For a long time, Indian businesses could only hedge their currency’s exposure by approaching the banks to buy a forward cover in the OTC market. The OTC market used to be a closed market when it comes to forex risk hedging. OTC market represented a telephone market between large financial institutions. But now the use of derivatives in forex trading is accessible even for retailer investors. Today, it is much easier to cover your currency risk by just opening a trading account with your broker. These currency futures and currency options can be bought and sold from your home’s comfort through the Forex trading platforms.
Regarding trading USD/INR options, you can go for the trading call by putting options on the pair in which case there is no delivery of the dollar, and the difference exchange happens in INR. This kind of trading is a European style. The option can be exercised upon expiry or squared off in the month if the dollar gains strength against the rupee on or before expiry, then, the buyer of the call option gains. A buyer of the put option earns on a weakening dollar and loses on a strengthened dollar.
So, what about USD/INR trading in a futures contract? In a futures contract, USD/INR lets you buy or sell the dollar at a preset price for delivery on a future date. Futures are settled in cash in INR.
All forex trading has specific strategies or analyses that traders make use of to decide whether to buy or sell a currency pair. These trading strategies are generally based on world events, technical analysis, and historical trends.
USDINR trading – trading strategies
The popular strategy used by traders is the price action strategy and depends on the bulls/bear of the market price.
Then, there’s trend trading. It means that the trader depends on trend analysis, wherein the currency price movement is determined before deciding on an entry point.
The other good strategy can be counter-trend trading. It’s a strategy where traders go opposite to the trend. There are also range trading where a specific price range is used for trading. Then, we have breakout trading, where traders enter the forex market at the moment when it is breaking out of a previous range of trading.
We also suggest position trading that requires using chart analysis and needs a trader to have in-depth knowledge and expertise. Carry trade comprises selling a currency with a low-interest rate and buying a currency with a high quality of interest.
A new trader may think this is all slightly overwhelming at the start. But, as mentioned before, the forex market requires some knowledge of the market, along with an understanding of market conditions and the influence of world events that could impact foreign currency prices and trade with confidence.