INTRODUCTION

Forex (in simple terms, currency) is also called the foreign exchange, FX or currency trading. It is a decentralized global
market where all the world’s currencies trade with each other. It is the largest liquid market in the world.
The liquidity (more buyers and sellers) and competitive pricing (the spread is very small between bid and ask price)
available in this marked are great. With the irregularity in the performance in other markets, the growth of forex trading,
investing and management is in upward trajectory.
Forex trading turns that little airport or ATM currency exchange into a sport. When investors trade forex — commonly
called FX — they’re buying and selling currencies over the foreign exchange market. It’s the largest financial market in
the world but one in which many individual investors have never dabbled, in part because it’s highly speculative and
complex.
A little healthy trepidation serves investors well. Active trading strategies and complex investment products don’t have a
place in most portfolios. We strongly recommend low-cost index funds for long-term goals like saving for retirement.
But maybe you have that balanced portfolio in place, and now you’re looking for an adventure with some extra cash.
Provided you know what you’re doing — please take those words to heart — forex trading can be lucrative, and it
requires a limited initial investment
 CHARACTERISTICS OF FOREX
 Most liquid market in the world
Currency spot trading is the most popular FX instrument around the world, comprising more than 1/3 of the total activity.
It is estimated that spot FX trading generates about $1.5 trillion a day in volume, making it the largest most liquid market
in the world.
Compare that to futures $437.4bn and equities $191bn and you will see that foreign exchange liquidity towers over any
other market. Even though there are many currencies all over the world, 80% of all daily transactions involve trading the
G-7 currencies i.e. the “majors.”
 Most dynamic market in the world
Foreign exchange market is the most dynamic market in the world. Regardless of which instrument you are trading – be it
stocks, municipal bonds, U.S. treasuries, agricultural futures, foreign exchange, or any of the countless others – the
attributes that determine the viability of a market as an investment opportunity remain the same.
Namely, good investment markets all possess the following characteristics- liquidity, market transparency, low transaction
costs, and fast execution. Based upon these characteristics, the spot FX market is the perfect market to trade.
 OBJECTIVES OF FOREX

 Correcting balance of payment

The main purpose of exchange control is to restore the balance of payments equilibrium, by allowing the imports only when
they are necessary in the interest of the country and thus limiting the demands for foreign exchange up to the available
resources. Sometimes the country devalues its currency so that it may export more to get more foreign currency.
 To protect domestic industries
The Government in order to protect the domestic trade and industries from foreign competitions, resort to exchange control.
It induces the domestic industries to produce and export more with a view to restrict imports of goods. To maintain
overvalued rate of exchange
This is the principal object of exchange control. When the Government feels that the rate of exchange is not at a particular
level, it intervenes in maintaining the rate of exchange at that level. For this purpose the Government maintains a fund,
may be called Exchange Equalization Fund to peg the rate of exchange when the rate of particular currency goes up, the
Government start selling that particular currency in the open market and thus the rate of that currency falls because of
increased supply.
To prevent flight of capital
When the domestic capital starts flying out of the country, the Government may check its exports through exchange
control.
 NEED AND SCOPE OF FOREX
1. An Employee Who is Working in Foreign Company

A person who is providing service to foreign company and earning salary in foreign currency. He need to manage whether he
will convert it in his country's currency today or wait for good time.

2. A Student Who is Studying in Foreign Country

A student who went to foreign country for study, needs foreign currency. He has to deposit his own currency into bank and
gets foreign currency on the basis of current Forex rate.

3 Banks

Banks also need foreign currency because it earns money by providing foreign exchange currency. For example, if any Indian
who has earned $ 3200 from USA will deposit in his bank. Bank will convert in Indian rupees and then bank will get fees for
this.

4. Tax Departments

Tax department also included in scope of Forex management because they are interested to get service tax when other
country's currency is converted into their own currency.
 Advantages of forex
1. Flexibility
Forex exchange markets provide traders with a lot of flexibility. This is because there is no restriction on the amount of money
that can be used for trading. Also, there is almost no regulation of the markets. This combined with the fact that the market
operates on a 24 by 7 basis creates a very flexible scenario for traders. People with regular jobs can also indulge in Forex
trading on the weekends or in the nights.

2. Trading Options
Forex markets provide traders with a wide variety of trading options. Traders can trade in hundreds of currency pairs. They
also have the choice of entering into spot trade or they could enter into a future agreement. Futures agreements are also
available in different sizes and with different maturities to meet the needs of the Forex traders.

4. Transaction Costs
Forex market provides an environment with low transaction costs as compared to other markets. When compared on a
percentage point basis, the transaction costs of trading in Forex are extremely low as compared to trading in other markets

5. Leverage
Forex markets provide the most leverage amongst all financial asset markets. The arrangements in the Forex markets
provide investors to lever their original investment by as many as 20 to 30 times and trade in the market! This magnifies
both profits and gains.
 Disadvantages of forex

1. Counterparty Risks
Forex market is an international market. Therefore, regulation of the Forex market is a difficult issue because it pertains to the
sovereignty of the currencies of many countries. This creates a scenario wherein the Forex market is largely unregulated.
Therefore, there is no centralized exchange which guarantees the risk free execution of trades.

2. Leverage Risks
Forex markets provide the maximum leverage. The word leverage automatically implies risk and a gearing ratio of 20 to 30
times implies a lot of risk! Given the fact that there are no limits to the amount of movement that could happen in the Forex
market in a given day, it is possible that a person may lose all of their investment in a matter of minutes if they placed highly
leveraged bets

3. Operational Risks
Forex trading operations are difficult to manage operationally. This is because the Forex market works all the time whereas
humans do not! Therefore, traders have to resort to algorithms to protect the value of their investments when they are away.
Alternatively, multinational firms have trading desks spread all across the world.
Current scenario of forex
 CONCLUSION
Although foreign exchange may be confusing, in today’s global marketplace, there is a critical need for almost
everyone to understand foreign exchange like never before. As the world shrinks, there is an ever-increasing likelihood
that we will be required to address the risks associated with the fact that there are different currencies used all around
the world and that these currencies will have an immediate impact on our world. We must be able to evaluate the effects
of, and actively respond to, changes in exchange rates with respect to our consumption decisions, investment portfolios,
business plans, government policies, and other life choices (both financial and otherwise). Moreover, there is an ever-
increasing probability that we will have to transact in these foreign exchange markets—in our personal or professional
life.

BIBLOGRAPHY
• Thakur publications
• WWW.forexinfo.com