Here is a step-by-step process on how you can short the Rupee on the Forex market:
Step 1. Choose a suitable broker
Step 2. Registration and account opening
Step 3. Asset selection and market analysis
Step 4. Initiate a short position
Step 5. Closing position and profit calculation
Most individuals are well-acquainted with the concept of capitalizing on increasing prices. A trader purchases a currency with the anticipation of its value rising, subsequently selling it when it reaches its peak potential. These transactions are known as long positions. Interestingly, despite its counterintuitive nature, there exists a method to generate profits when the value of an asset is in decline. These transactions are referred to as short positions. It is feasible as well, to initiate a short position for various assets, including currencies and stocks, on the trading exchange. This approach to trading holds the potential for substantial gains, although it is accompanied by elevated risks. In this article, the experts at TU have laid down a step-by-step process, specifically on how you can short the Rupee. Furthermore, you will know how Indian currency markets work and how Forex is regulated in India.
Do you want to start trading Forex? Open an account on RoboForex!The process of shorting the Indian Rupee in the Forex market involves a series of strategic steps that require careful consideration. Here's a step-by-step breakdown to help you navigate this trading approach:
To initiate the process, the first step is to select a broker that offers favorable conditions for your trading needs. Look for brokers with low minimum deposit requirements and low transaction fees. This choice lays the foundation for your trading journey.
Once you've identified a suitable broker, proceed to register and open an account with them. Consider the option of registering through a list of top platforms reviewed by organizations such as TU, as it might grant you rebates – a form of compensation for the trading fees incurred with each trade. This can offer a cost-effective advantage in your trading endeavors.
With your account established, it's time to delve into the heart of trading – selecting an asset and analyzing the market conditions. Utilize the principles of both technical and fundamental analysis to gain insights into the market's current state. These methods aid in forming a well-informed prediction about the asset's potential price movement.
In this crucial step, you'll initiate a short position on the Indian Rupee. This entails borrowing a quantity of Rupees from your broker and promptly selling them. As the asset's price begins to decline and reaches your estimated bottom, you'll proceed to buy back the borrowed Rupees, effectively closing the position.
The final phase involves closing the position, which occurs when you repurchase the Rupees you initially borrowed. At this point, the broker will automatically receive the borrowed funds along with any associated fees. This is where you calculate your profit, considering the difference between the Rupees' initial selling price and the price at which they were bought back.
| Parameter | Zerodha | Shoonya | IG Markets |
|---|---|---|---|
Minimum Deposit |
No minimum deposit |
No minimum deposit |
$250 (or equivalent) |
Types of Trading Instruments |
Stocks, IPOs, Currency Derivatives, F&O, Commodity Derivatives, Direct Mutual Funds, ETFs |
Stocks, Forex, F&O, ETFs, Bonds, Direct Mutual Funds |
CFDs on Forex, Indices, Shares, Commodities, Cryptocurrencies, Options, Non-CFD Exchange-Traded Securities |
Regulation |
Regulated by SEBI, NSE, BSE, MCX |
Not specified |
Regulated by FCA, ASIC, FSCA |
Apart from these limited options, if you're open to exploring other currency pairs that do not involve the India rupee, the following brokers offer enticing features like low minimum deposits, welcome bonuses, and a broader selection of currency pairs.
| Parameter | Exness Group |
|---|---|
Minimum deposit |
USD 15 - USD 50 |
Fees class |
Low |
Deposit method |
Bank transfer, Credit card, E-Wallets, Crypto wallets |
Withdrawal method |
Same as deposit methods |
Withdrawal fee |
No withdrawal fees charged |
Time to open account |
Within 1 business day (Complete verification) |
Inactivity fees |
Nil |
Exness presents a wide spectrum of trading opportunities, boasting an impressive array of 97 currency pairs and 34 cryptocurrency pairs. This expansive selection encompasses a diverse range of trading choices, from blue-chip equities to commodities and indices.
Traders have the flexibility to engage in markets spanning major, minor, and exotic currency pairs, as well as indices, stocks, energies, cryptocurrencies, and metals. With different account types available, the minimum deposit requirements vary, beginning at $1 for standard accounts and $200 for professional accounts. Floating spreads are a common feature across all account types, while tighter spreads are accessible on Raw Spread and Zero accounts. Leverage availability is contingent on the specific instrument and the regulatory framework governing each trade.
| Parameter | OctaFX |
|---|---|
Minimum deposit |
USD 25 |
Fees class |
USD 6 trading costs on average |
Deposit method |
Visa/Mastercard |
Withdrawal method |
|
Withdrawal fee |
No withdrawal fees charged |
Time to open account |
Less than a minute |
Inactivity fees |
Nil |
OctaFX offers an extensive selection of over 230 tradable instruments, coupled with distinct account types tailored to accommodate various trading preferences and experience levels. Notably, the inclusion of cryptocurrencies allows for both cryptocurrency-based funding and trading, featuring pairs such as Bitcoin, Ethereum, Ripple, and more, with leverage reaching up to 1:25. A diverse range of currency pairs and precious metals, coupled with swift market execution, contributes to enhancing trading efficiency. OctaFX endorses the practice of copy trading across its account types, empowering traders to replicate the strategies of experienced peers. Enriching the trading experience, educational resources, trading signals, charting tools, and webinars are readily accessible to enhance traders' knowledge base.
| Parameter | Tickmill |
|---|---|
Minimum deposit |
USD 100 |
Fees class |
Low |
Deposit method |
Bank transfer, credit/debit cards |
Withdrawal method |
Same as deposit methods |
Withdrawal fee |
No withdrawal fees charged |
Time to open account |
Within 1 business day (Complete verification) |
Inactivity fees |
Nil |
Tickmill caters to a broad spectrum of traders through its accessible interface, intuitive trading platforms, and comprehensive educational resources. At the core of its trading offerings lies the MetaTrader 4 platform, supplemented by FIX API access and a Prime brokerage model designed to accommodate advanced trading strategies. The platform's variable spreads start as low as 0.0 pips, predominantly available within the Pro and VIP Account tiers. Notably, commission-free trading is prevalent for CFDs tracking global stock indices, oil futures, and bonds across the account types. Tickmill pledges swift trade execution, averaging within 0.15 seconds, with the added benefit of no requotes even in volatile market conditions. The platform supports a wide range of trading strategies, encompassing arbitrage, scalping, and algorithmic trading.
| Parameter | RoboForex |
|---|---|
Minimum deposit |
USD 10 |
Fees class |
Low |
Deposit method |
VISA/MasterCard |
Withdrawal method |
Same as deposit methods |
Withdrawal fee |
No withdrawal fees charged |
Time to open account |
2 business days (Complete verification) |
Inactivity fees |
Nil |
Regulated by the International Financial Services Commission (IFSC), RoboForex extends access to a substantial 12,000 trading instruments spanning eight distinct asset categories. The broker presents a sign-up bonus of $30 to newly registered traders, enabling profit withdrawal.
Trading conditions at RoboForex offer spreads from 0 pips and competitive commissions, primarily within ECN, Prime, and R StocksTrader accounts. Furthermore, RoboForex accommodates real stock investment, offering access to an extensive array of NASDAQ and NYSE-listed stocks. The broker’s R Mobile Trader app empowers mobile trading convenience, permitting essential functions like news monitoring and position management on-the-go.
USD/INR forecast by TU is prepared automatically on the basis of technical analysis of moving averages and indicators for each timeframe (interval) separately. Select the timeframe you need to find out USD/INR price prediction for today.
Note:
Signals may differ on different timeframes. If you want to hold the USD/INR for longer than 1 week/1 month, it is best to use the signals on daily and weekly timeframes. Timeframes from 5 minutes to 1 hour are best suitable for short-term transactions.
Dozens of thousands of successful traders use short positions on Forex. However, it is easier to explain how the shorts work using the example of securities or stocks. Let’s assume that a trader performed market analysis and is convinced that IBM stock will crash by the evening. He can profit from this by taking the following steps. A trader borrows 100 IBM shares from his broker and sells them immediately at their stated price, let’s say USD 150 per share. In the evening, the stock price drops to USD 120, the trader buys 100 shares and returns the debt to the broker.
How much will he earn by opening a short position at the exchange? 100х150= USD 15,000 – this is the amount he sold the shares for. 100х120= USD 12,000 – and this is the amount he later bought the shares for in order to return them. USD 15,000-USD 12,000=USD 3,000 – that’s how much he earned (minus the trading fee). It is a very simple mechanism. You use the same principle to open short positions on US dollar or other currency in order to first sell the borrowed funds and then buy them, when the price drops, and return to the broker.
Distinguishing between shorting in the stock market and the Forex market highlights a significant contrast: in the latter, there's no need to borrow a specific quantity of the intended currency for shorting. Engaging in a Forex short trade is as uncomplicated as triggering a sell order.
Currency pairs
Each Forex currency pair consists of a base currency and a quote currency. The order starts with the base currency followed by the quote currency. For instance, consider the pairing of XYZ/ABC where XYZ serves as the base currency and ABC as the quote currency.
Understanding pip values
Price adjustments are quantified in pips. With the exception of the currency JPY, one pip is equivalent to 0.0001 of the quote currency's value. In cases where JPY is the quote currency, a pip translates to 0.01 JPY. Occasionally, brokers might offer values extended to a single digit beyond the pip, referred to as a fractional pip or pipette.
Lot sizes
Currency transactions are commonly executed in standard lots, involving a base currency quantity of 100,000. Nevertheless, transactions can also occur in smaller sizes like mini lots, encompassing 10,000 base currency units, or micro-lots, consisting of 1,000 base currency units.
Let’s take an example
Suppose the XYZ/ABC exchange rate is at 2.3456, signifying that 1 unit of XYZ is equivalent to 2.3456 units of ABC. If there's an anticipation of XYZ's value depreciating against ABC, executing a sell order for this currency pair at the prevailing rate would be appropriate. In case the purchase of the pair occurred after the rate adjustment to 2.3443, the gain would total to 13 pips.
Calculation of pip value
For computing the pip's value in the quote currency concerning a standard lot of the base currency, utilize the formula: 0.0001 (one pip) / 2.3456 (exchange rate of the pair) x 100,000 (lot size) = $4.26. Thus, if a profit of 13 pips was realized, the total gain would be 13 x $4.26 = $55.38, ignoring potential commissions.
The Indian currency market involves the trading of currency futures through platforms provided by exchanges such as the NSE, Bombay Stock Exchange (BSE), and MCX-SX. These platforms facilitate the buying and selling of currency contracts that speculate on the future value of various currencies.
Currency trading activities are typically active during the time span from 9:00 AM to 5:00 PM. This designated period serves as the window within which traders can engage in currency transactions, responding to market dynamics and economic developments.
Participating in the live currency market requires the establishment of a Forex trading account with a brokerage firm. This account is the gateway through which traders can execute their currency trades. It's essential to choose a reliable and reputable broker that offers the necessary tools, resources, and support for effective trading.
When you open a Forex trading account, you gain access to a trading platform that allows you to analyze currency pairs, monitor market trends, place orders, and manage your trading activities. The trading platform is designed to be user-friendly, enabling both seasoned traders and beginners to navigate the market with ease.
One of the most notable drivers of currency market movements is the intervention of central banks. These financial institutions wield considerable influence as they manipulate various tools to shape market dynamics. Among these tools are strategies that directly impact monetary policies, adjustments within exchange rate regimes, and interventions in currency valuations.
At the heart of India's currency market operations stands the Reserve Bank of India (RBI), the nation's central bank. This institution shoulders a pivotal role in safeguarding the Indian Rupee from potential deflationary pressures. The RBI employs its authority judiciously, intervening in the currency markets when circumstances warrant such action. By doing so, the RBI effectively contributes to maintaining the stability of the Indian Rupee against external pressures.
It's imperative to recognize that the world of Forex trading is intertwined with multifaceted factors that govern currency valuations. Geopolitical shifts, economic indicators, and central bank actions collectively shape the condition of the currency markets.
These factors encompass both global and domestic elements, influencing the INR's trajectory against other currencies.
US Dollar index impact
The US dollar index serves as a barometer of dollar strength, exerting significant influence over the value of the rupee. Movements in this index directly impact the INR's worth.
Global developments
International events, such as potential shifts in the Federal Reserve's stance, contribute to INR's fluctuations. These external dynamics can prompt changes in the INR's value.
Trade deficit and capital outflows
A rising trade deficit or substantial capital outflows can undermine India's external sector dynamics, leading to rupee depreciation.
Central bank interventions
The Reserve Bank of India's intervention strategies in the global market play a pivotal role in stabilizing the INR and maintaining a controlled trading range.
Inflation influence
Inflation rates often correlate inversely with a currency's strength. Heightened inflation erodes the purchasing power of the rupee, potentially weakening it against other currencies.
Interest rate dynamics
The real interest rate prevailing within the economy also shapes the rupee's value. Higher real rates can bolster the currency's appeal.
Fiscal deficit management
The government's ability to maintain a fiscal deficit around 3% of GDP positively impacts the INR, fostering confidence in its stability.
Government intervention
Government actions, while less pronounced than in the past, still exert influence on the rupee's value.
Speculative strategy
Shorting the INR against other currencies can also be approached as a speculative endeavor, guided by technical analysis indicators. Observing specific price signals that indicate an imminent decline in the INR's value can prompt traders to initiate short positions. Recognizing patterns like a recent INR high followed by a downward trend could signal a suitable moment to short the currency.
Hedging considerations
Investors may incorporate shorting INR as part of their broader hedging strategy, particularly if they possess investments denominated in other appreciating currencies. This tactic helps mitigate potential losses stemming from currency exchange fluctuations. For instance, if an investor holds substantial euros or British pounds, shorting INR can offer protection against adverse shifts in exchange rates between these currencies and the Indian Rupee over time.
Forex trading in India is governed by its the nation's regulatory framework, overseen by the Reserve Bank of India (RBI), which places certain restrictions on Forex trading activities within the country.
Specifically, the Foreign Exchange Management Act (FEMA) established by the RBI concerns Forex trading. Effectively, most forms of Forex trading are deemed illegal under this act. However, there are exceptions to this stringent stance. Trading is permitted only for a select set of currency pairs, which includes combinations involving the Indian Rupee (INR) like EUR/INR, GBP/INR, JPY/INR, and USD/INR, along with major pairs like EUR/USD, GBP/USD, and USD/JPY.
Adding a layer of complexity, these permissible currency pairs can solely be traded through the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), and the Metropolitan Stock Exchange (MSE), and only via licensed Indian brokers.
Why does the RBI impose such rigorous constraints? The rationale ties back to safeguarding the INR's stability against global currencies. In scenarios where Indian institutional traders incur losses while trading foreign currency pairs, they might necessitate purchasing USD from the RBI to settle their obligations. This action could potentially lead to USD outflows and result in INR devaluation.
To short currency, you sell a currency pair, aiming to profit from its decline in value. You buy it back at a lower rate to complete the trade.
Yes, you can short a national currency by trading currency pairs that involve that currency, anticipating its decrease in value.
Going short on a currency position means selling a currency pair with the expectation that the base currency will weaken against the quote currency.
In India, trade currency through licensed brokers on authorized exchanges, adhering to legal currency pairs and regulations set by the Reserve Bank of India.
A broker is a legal entity or individual that performs as an intermediary when making trades in the financial markets. Private investors cannot trade without a broker, since only brokers can execute trades on the exchanges.
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
Forex trading, short for foreign exchange trading, is the practice of buying and selling currencies in the global foreign exchange market with the aim of profiting from fluctuations in exchange rates. Traders speculate on whether one currency will rise or fall in value relative to another currency and make trading decisions accordingly.
Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.
Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.
Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.
As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).
