Foreign Exchange Market in India – Overview about the foreign exchange trading in India

Taking cue from the rise in popularity of forex trading the world over, the Indian foreign exchange market is also growing in leaps and bounds. At present, the annual turnover of foreign exchange trading in India exceeds a whopping $400 billion. The volumes included inter banking trading as well as futures and forward trading in foreign exchange. Transactions are also made on the basis of swapping currencies and interest rates as well.


The principal place where forex is transacted in big volumes is Mumbai. The market involves intermediaries, buyers, sellers and the monetary authority of India. Apart from Mumbai, the other centers where forex is also traded are Kolkata, Chennai, New Delhi, Cochin, Pondicherry and Bangalore. Even though the markets are not linked as they are in other parts of the world, they do perform collectively.

Authorized dealers

The Reserve Bank of India or India’s central bank regulates the market using the help of the exchange control department of the bank. Only the authorized dealers in foreign exchange are allowed to participate in trading which also included accredited brokers as well. The entire transactions are governed by FEMA or the Foreign Exchange Management Act of 1999, which is an updated version of the Foreign Exchange Regulation Act or FERA.

Regulations changed

Apart from the usual authorized dealers and brokers, designated hotels, government shops, authorized money changers are also allowed to accept foreign currency. If you are thinking of the systems in operation in other parts of the world, India is slightly lagging behind. On certain conditions, the IDBI or the Industrial Development Bank of India and the Exim Bank are also allowed to hold foreign currency. The set-in-stone policy in foreign exchange holdings and trading has been relaxed in keeping with the changing scenario the world over.

India bracing up

Initially, FERA was bright in to regulate the inflow of foreign capital, but in later decades as the economy opened up, some changes were brought in. At a later stage, the government felt the need to conserve foreign money, and hence, the changes in the act were brought about. Moreover, with the opening up of the economy, there came an urgency to change with the times. With the economy getting more global in recent years, India wanted to brace up to the challenges ahead and went in for more interaction in the financial markets the world over.

Hedging and swapping

Initially, Indian investors were also not aware of different types of trading in forex like futures and derivates that could lead to more sustained profits in the long run. They are now hedging, swapping and going for options trading these days. Forex can also be traded online these days and investors are also finding out the benefits in currency trading. Earlier, they had very few options to make money from speculative trades with commodities and stocks being the only available options.

Best time to trade

The Indian forex traders have also come to realize that a small ripple felt in a far corner of the globe can affect markets in India. We are more interconnected and no country can remain unaffected from the changes happening in the world these days. If you are planning to invest in forex trading in India, this could be the best opportunity as things have kick started and would be  on a roll soon. Currencies are also interlinked and any changes in a major currency price can affect other weaker currencies of the world. Forex trading takes benefit from the rise and falls in prices of currencies.

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