How to make money in trading

Most of the new entrant get swayed away by the eye-catching video advertisements, some gets too excited by the blue sky stories. After a few days they find it to be completely opposite of what they had heard or saw in the advertisements. So, how to make money?
Making money in trading is a psychological game, it’s a very well established fact that about 95% of traders always make loses in trading, only 5% traders make money in the market. To be among that you need following competencies as a trader:

1. Money Management & Risk Management
a. Since Forex is all about derivatives trading, your broker would give you some margin leverage by default. Some may find it very exciting and luring. That exactly the first mistake is made. Here is an example to help you understand:
i. Person A has INR 10,000 to start trading in the Forex. Here we take NSE as exchange and Upstox as broker.
ii. 1 Lot of USR INR pair is equivalent to $ 1000. In another words if you buy/sell 1 lot of the said pair you are trading worth $ 1000. While broker may charge just 1% as upfront margin to execute the trade but it’s to be noted that your risk is at 100% of contract size which is worth INR 75,000 /per lot.
iii. As per the capital above, in INR 10,000 you can take positions worth 4 lot. Means you can trade worth $ 4000 (INR 3,00,000) by just paying 10,000 as margin.
iv. If you gain 1 rupee, you would make decent profits. Let’s understand that.
1. Gained Points x Lot Size X Each Lot Size. You can simply calculate your profits. See the example calculation below.
2. 1 x 4 x 1000 = INR 4000. That’s your profit. Well, that’s too good. Isn’t it. You would make 4000 on a margin of 10,000.
3. That’s 40% profit. Pretty huge, isn’t it?
v. Now let’s come to the other side of the picture. What if your trade goes wrong?
vi. You would end up as much as 40% of your total net worth in just 1 trade as per the above calculation. Remember, only 5% traders get the trades right.
b. So, focus on your basics. Define a Stoploss and put that in system. So you can protect your loses.
c. Don’t use 100% of your capital in 1 go. As a risk protection measure use maximum 50% of your capital to take trading positions. Keep some ammunition to manage your trades, in case your trade goes wrong.
2. Directly entering into Option trades?
a. Options are very lucrative, even lower margins compared to futures.
b. That’s another thing which people must understand that when you trade options you are actually predicting 2 things – Price and Time (in futures it’s just price mainly)
c. Therefore it’s possible that if price doesn’t move at all, means the price on expiry is same as of time you had option. You may still incur lose.
d. Therefore, as a new trader never start with options. Unless you understand options and it’s strategies very well.

3. Understand and practice the factors which make price impact. What are those?
a. News – local and international
b. Options data – Call and put/ Open Interest Buildup
c. Technical Charts – To help in predicting sentiments and price movements
d. Actions of various central banks – RBI, US FED, ECB, BoJ, PBoC etc.
e. Government actions on public borrowings and liquidity measures – Best way is monitor T-bills or 10 Yr. sovereign bonds yields
f. Most important – Monitor US DOLLAR Index. It would impact all currency pairs.
g. Keep a watch on Gold and Crude Futures.

Earn through Trading

FOREX is a word made by two separate words, Foreign Exchange. In today’s life almost all of us do Forex transactions in some or the other way. Forex instruments and the Forex changes are one of the most liquid markets globally, the average daily transactions exceeding as high as $6.5 trillion.

How to make money from Forex trading in India?
In India, Forex trading is done via two routes.
1. OTC – Over the Counter
2. Exchanges – Stock/Commodity Exchanges

OTC route is usually for the banks/NBFCs and institutions to execute various types of transactions across various currency pegs. For retail investor/traders execution via stocks/commodities exchanges is the most cost and time efficient way.
Now, retail participants can do the Forex transaction via any NSE/BSE/MCX registered brokers. Once the account is activated, simply add the funds to your account and you are set to go with the trading experience.

Top 5 brokers for account opening:
1. Zerodha (Discount Broker)
2. Upstox (Discount Broker)
3. SAMCO (Discount Broker)
4. 5paisa (Discount Broker)
5. Prostox (Discount Broker)
While discount brokers have excellent technological mediums to offer to their clients and account opening process is also very simplified, there are some key takeaways which one must consider before make a choice between the discount brokerage account and the full service brokerage.
1. The trading margin (Leverage) is limited and fixed for all clients,
2. No access to research reports with discount brokerage.
3. No guidance by relationship manager (if you are new to the trading, you might need a helping hand)
4. Most important, they charge mostly on “Per trade” basis, NOT “Per lot” or on some percentage of traded value basis. It may suit some, may not be a good option if your trade quantity is small.
On the other hand, Full service brokers offer a bundle of services, though that too has its own pros and cons. Here is what you can expect.

1. Relationship manager or dealer support to walk you through the complexity of “Futures” and “Options”
2. Full service broker can allow extra leverage (based upon customer profile and business relationships)
3. Daily & weekly research reports to help you in decision making.
4. They most charge some percentage of total traded amount as their brokerage. This may be a very good option if your traded lots (quantity) is small in the starting.

As you can see, there is no one size which can fit all. So, it’s always better to calculate your model before you start with the any of the broker.

As of today, in India the allowed currency trading pairs are

Also remember the trades are only allowed in the derivatives market (Futures and Options) only. Since F&O is a highly leveraged product, always calculate your risk and reward before taking any trade.