The Indian rupee (INR) has not been highly in demand lately. Since April, the rupee has been sliding lower and lower. It’s currently hovering right around its three month low point when compared to the U.S. dollar (USD). This is news that can be interpreted in a number of different ways, so let’s unpack two of the big ways that this has had an impact on short term traders.
First, in India itself, a weak rupee is considered to be a sign of political weakness. That sets the stage for Prime Minister Narendra Modi to be in a rough spot come the next election.
Second, it sets the stage for the Indian economy and the businesses within it to boom. In the United States, there is a negative correlation between how the stock markets perform and what the dollar does on the international stage. This means that on a general basis, when one goes up, the other goes down. It’s not a perfect negative correlation, as seen by the last several months, but it is more of a generality. The same holds true in India. When the rupee goes down, then the economy is set to go up.
Why does this happen? When a currency is weak, it becomes easier to purchase things with other currencies because they are stronger. You can create more buying power with a different currency by converting it to the weaker currency, getting an inflated amount of money, and then using that to buy stocks in the country with the weaker currency. This is currently what’s going on in India. It’s a good thing for their businesses, but a bad thing for their government as the rupee has lost its sway.
The next point is an easy one to make. There are plenty of chances to make money when a situation like this occurs. Proponents of the U.S. dollar can make money by going long on the dollar and short on the rupee. In the Forex market, this might not be easy unless you use excessive leverage. If the rupee drops 50 pips in a day, that’s great, but if you didn’t risk enough, then the profit you will see is going to be less than a dollar. However, this can be multiplied to a lot of money, depending on how much you risk. And when the leverage is amped up, it can become several hundred dollars in profit or more. The only problem is that your risk goes up, too, so while on this trade you make a few hundred dollars, on the next, you could lose the same amount on a bad trade.
Or, you can focus on binary options, where leverage doesn’t become an issue. Yes, there is risk because if you predict the direction of movement wrong, then you lose all your risked, but when you are correct, you don’t need to worry about wasting your time on a small profit as there are no small profits. All correct trades receive a full amount, whether it’s a single pip in the right direction or 1,000. For those traders that have a firm grasp on the basics, this is a great choice as you don’t need to worry as much about how long your exposure is. These things are all known beforehand, so you won’t have to stress as much during the life of the open trade.
Stability in a currency is important, but a weaker currency now and then is a good thing as it brings investors into the private sector, and this is currently a good thing in India. The private economy is growing, and that’s a good thing for the average person their. The currency doesn’t need to be strong, it just needs to be stable, which it currently is. Regardless, when you know how the play between the two parts of an economy work, you can use it to your advantage as a trader.