Forex Trading

What is forex ?

 Forex is nothing but foreign exchange. Exchanging the currency of one country with an equivalent value of another country .This may be done mainly through trading. Let’s consider a simple example, suppose you live in India and you are going to US for a vacation, you cannot use Indian rupees in US market and all you need is US dollars. So what should be done? It’s simple, all we have to do is we need to convert the Indian rupees into Dollars. Is this is possible? Yes it is and this is called as foreign exchange or in simpler terms Forex. Currencies are traded with reference to exchange rates. For example if one dollar is equal to 50 rupees (say) then this 50 rupees is the exchange rate and currency is traded with this rate.

Can We Make Money Through Forex?
The answer is Yes. We can make money through forex. You will be confused how we can make money with this transaction. This can be explained simply by the following example:-

Consider you have hundred rupees in hand and you are going to convert it to dollars. Suppose if the exchange rate for one dollar in terms of Indian rupees is 50 rupees then we will be getting two dollars in hand. So now we have two dollars. Suppose if rupees value gets appreciated ( appreciation refers to decrease in rupee value with reference to foreign currency mostly with US dollars and depreciation is vice versa). So suppose if the rupee value goes to 48 rupees by next week then we will get only 96 RS with the two dollars which we have. So we incur a loss of four rupees. This is in simpler terms. But when the money value appreciates that is if it goes to 52 rupees then we will get a profit of 4 four rupees. So it is good to invest in foreign currencies when money value appreciates and to sell when it depreciates.

Rupee appreciation always favours for companies which is doing imports and depreciation favours for exporting company. Consider if you are an exporting company and doing export for 100 dollars. When you make the deal the exchange rate is 50 rupees. But when you deliver the goods the exchange rate is 60 rupees then you will get a profit of 10 rupees for each dollar so that in total will get a profit of 1000 rupees. If the rupee value appreciates and goes to 40 rupees then we make a loss of 1000 rupees. The vice versa is the case for company which imports. When we sign a deal for 100 dollars we need to pay 5000 rupees. If money gets appreciated to 40 we need to pay only 4000 rupees but when it is depreciated to 60 we need to pay 6000 rupees. This is how trading market works.

What will be the cause of depreciation?

Depreciation is the main cause for Inflation in a country. The price of each and every commodity rises up because of money depreciation only. This can be explained by the very common example of oil prices. People debating that before oil prices are very less and now it is very high. Why this happened. India is not producing oil and we are only importing oil. Before the exchange rate were too low and hence even the prices are too low. If one barrel of oil is 100 dollars (for example) and exchange rate is 40 rupees then one barrel will amount to 4000 rupees and when exchange rate is 50 rupees then it will amount to 5000 rupees and hence the prices of oil are going up. In general if we import more than we export then surely it will result in inflation. If a country’s GDP value (gross domestic product – value of all goods that is produced in a country for a particular period of time) is less then it will cause the money value to get depreciated. If GDP is increasing then the money value will also gets appreciated.

When the demand increases for the goods that being exported then the money value gets appreciated. The demand for the local product in the international market will rise and hence the currency value gets appreciated. Also locally when the per capita income of a country increases then the currency value will also get increased and hence money gets appreciated.