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What are the benefits of trading in the currency market?


What are the benefits of trading in the currency market?
Currency futures or trading in the currency market offers several benefits, especially the mechanism to hedge against currency risk, thus preventing any undue losses. Here are a few benefits that they offer and which you cannot ignore.

A perfect hedge

Let's say you are an exporter and have dollars to remit, but, not sure if the currency will fall or gain against the Indian rupee. In such a case you can hedge your risk by taking a position in the futures market. Similarly, for importers.

Also, there are borrowers who borrow in foreign currency, who need to pay back over a certain duration. If you are not sure which way the currency will move, you can position yourself accordingly in the currency futures market. For example, when taking the loan if the US dollar was 50 against the rupee and when paying back if you have to pay back at Rs 54 to the dollar, you are likely to loose. Hence, you can position yourself long in the Futures Currency Market. Also, resident Indian can hedge their offshore investments.

Trading in the currency futures market provides an arbitrage opportunity and also benefits of multipliciy and also volatility.

Another advantage is that currency trading allows you to diversify from the usual equity trading platform.

It's worth taking a shot in the currency futures market only when you have good fundamental and a little technical knowledge. For that, you need to seek advice at least initially.

Read more about: currency futures
Story first published: Wednesday, March 6, 2013, 10:33 [IST]
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