Well, I keep getting a lot of queries and emails on Forex Trading since I posted an article on Online Forex Trading for Beginners quite a few months back. While most of the basic technical topics are covered in that article, I thought of consolidating a few frequently asked questions on Forex trading in this post.
Please note that the information shared here is as per the best of my knowledge. I am not an authority when it comes to topics like government financial regulations, policies etc. And, I intend to keep this post updated as and when more information is available (If you find any discrepancies here, please let me know)
Online Forex FAQs
Let me begin with the most asked questions first:
1. Is Online forex trading illegal in India?
Yes. Forex trading by individuals or businesses is ILLEGAL in India unless you are trading futures or options via recognized stock exchanges in India. RBI has made it very clear in the past as well as a more recent communication that you can find in this news item.
So if you are an Indian citizen, stay away from forex trading on the Internet.
2. So, why are you promoting Forex trading products on this blog?
This blog has visitors from all around the world and there are a lot of countries where forex trading, gambling etc are completely legal. I am unable to selectively display information for each country.
3. Is Forex trading regulated and legal in certain countries?
Yes. For example, in the UK, the FSA or Financial Services Authority regulates investments like Forex trading and protects clients’ money. You need to choose a regulated broker and understand the jurisdiction in your country before trading forex.
4. Is Forex trading risky?
Yes. Forex trading is extremely risky as you are leveraging on margins by 10, 50, 100 or even 400 times. Hence as much potential you have to earn money quickly; the risks are equally high as well. Basically, when you leverage more, it’s riskier as volatility results in huge sudden changes.
5. How to reduce risks in Forex trading?
Reducing leverage is a good way to trade pessimistically. This ensures that there is no sudden rise or fall of your positions. Also, pick stable currency pairs to trade or even commodities as explained below.
6. What are some good instruments to trade for beginners?
Commodities such as Gold are the best place to start when you do online Forex trading. It is possible to trade commodities using the same Forex trading account. If you are adamant on trading currency, then USD/CHF (US Dollar vs Swiss Franc) is a good one. Since Swiss Franc is a relatively stable currency, the movements will be more predictable though this particular pair is less liquid than crowd favorite pairs like USD-EUR.
7. What is Social Trading?
Social trading is explained in a dedicated post here.
8. Sitting in India, can I operate a Forex Account created by my friend or relative abroad?
If your friend or relative operates from a foreign country where Forex trading is permitted, I would believe that financial compliance, taxing, etc are on him. You cannot directly fund his account and hence it has to be completely managed by him while you may in principle trade using that account sitting here. This setup can work though there may be still legal issues? My mind says this setup may turn out to be illegal as well.