Forex trading is not new; it traces back to trading in ancient Egypt. Short for foreign exchange, forex is the backbone of the global financial system. With an average daily trading volume of $7.5 trillion in 2022 (Bank for International Settlements Triennial Survey report), the forex market is the world’s largest and most liquid financial market. The market showed 14 percent growth from its previous $6 trillion-plus valuation in 2019. Another recent report by the New York Foreign Exchange Committee (October 2024) mentioned that over-the-counter (OTC) forex trading valuation reached around $1,196 billion per day, including spot trading, swaps, and options.
In India, SEBI-regulated forex trading platforms offer legal access to currency derivatives. While direct trading in foreign currency pairs is restricted, Indian traders can participate through authorised brokers and regulated avenues.
So, why is forex trading so popular? In this post, we’ll discuss forex trading, how it works, the types, and some of the challenges involved, which will help you better understand the market.
Brief about the forex market
Forex is a marketplace for purchasing and selling currencies that operates without a central exchange, making it the most reliable financial market globally. The forex market relies on currency price fluctuations, allowing traders to profit from exchange rate movements. Its 24-hour trading cycle makes it appealing to various levels of investors, businesses, and institutions.
With benefits like hedging, high liquidity, leverage, and market accessibility, forex offers endless opportunities to capitalise on the evolving currency landscape.
How does forex trading work?
Forex trading in India operates through recognised banks, brokers, and financial institutions like the RBI (Reserve Bank of India) and SEBI (Securities and Exchange Board of India). Unlike platforms like the National Stock Exchange (NSE) or the Bombay Stock Exchange (BSE), forex transactions take place over the counter. This means they occur directly between parties across different time zones. They operate 24/5 across major financial hubs like London, New York, and Tokyo, allowing traders to speculate on currency shifts at any hour.