A currency trading is one that holds deposits in one or more currencies for trading. These trades are based on the movement of the foreign exchange market. With this type of account, you can now unlock vast and potentially significant returns from global markets. These and other factors draw investors to currency trading.
The act of buying and selling foreign currency for making money is known as forex trading. The process of forex trading is completely online. Forex Trading is same as that of equity trading. In equity trading rate of share matters while in forex trading exchange rate matters. You can buy or sell currency pair as per your expectation of movement in currencies. Please refer to the example given below for better understanding.
Suppose you want to take advantage of growing price of a dollar. The dollar is trading at Rs 64, you feel that price is going to appreciate and expected to reach at Rs 67 in few months you can enter into a long position by buying USDINR contract on the exchange. If the price goes to Rs 67, you get the profit of Rs.3 per dollar. So in the single contract of 1000$ you can earn Rs.3000.
After entering into the contract if you see that Rupee is appreciating and dollar price is expected at Rs 63, you can ‘short close’ your position by selling currency future contract. If dollar price goes to Rs 63 you can gain Rs 1 per dollar by squaring off your position. Total gain on a 1000$ contract will be Rs.1000. However, if a dollar moves up and reach Rs 67, you lose Rs 2 per dollar. An investor can square off position anytime during the period of the contract.