Currency trading in India is beginning to pick-up good momentum in the past few years. Investors are slowly but surely beginning to realize the significance of investing in currency, especially given the high market volatility. Currency trading allows you to diversify your portfolio while hedging your overall portfolio risk.
Here are 8 things that I learnt as an investor in currency for a year:
Good hedging method: Currency trading allows you to hedge the overall market risks associated with all your investment asset classes. Therefore, you will have to smartly manage your foreign currency trades to make it work well for you as well as your portfolio.
Having stop loss is crucial: It’s not rocket science to understand that foreign currency trading in India is a full risk. That said, if you adopt a strategic approach to foreign currency investing, then you should be fine. Thus, having a stop loss in place is a very crucial starting point for forex trading in India. This minimizes your risk exposure.
Trading in currencies with minimum risk-reward ratio: Now that you have a stop loss in place, you will need to make sure that you trade in currencies with a minimal risk-reward ratio, which could either be at 1:2 or just above that range. It is recommended that you do not a risk, which is more than 0.5% of your total planned trading capital.
Sub-dividing your trading capital: You are recommended to further sub-divide your trading capital. This will help you largely in generating multiple intraday trades. Therefore, while enjoying sustained profits, this will help you in maintaining your emotional calm. In currency trading, this is extremely crucial, especially because you will need to stay focused for constantly identifying key investment opportunities.
Hedge foreign currency risk from international business: Online currency trading in India helps you in hedging your future currency losses that could result from your international business, if you have international business avenues. Moreover, through currency trading, you can hedge your forex risks that could result for future payables and receivables in foreign currencies.
There are 8 major currencies that you need to target : Unlike the investment in stocks where you will need to track thousands of stocks, in case of currencies you will need to just track 8 major economies. These include the US, Europe (Germany, France, Italy, Spain), the UK, Canada, Australia, New Zealand, and Switzerland. These countries account for the majority of global currency trading. Based on your analysis of these economies, you need to identify the ones that will provide you with the best undervalued or overvalued opportunities.
Manage foreign currency risks of foreign currency borrowings: Currency trading can be very useful especially if you have borrowed funds in foreign currency. This can help you with the interest and principal repayment of your foreign currency borrowing.
Look at market volatility as an advantage: On one end, market volatility can affect your overall investment portfolio, but on the other end, it can be a blessing in disguise since it offers great opportunities for investing in foreign currencies.