- What is Forex Trading in India? Legal or not?
- Is Forex trading illegal in India? Can Indians trade Forex Legally?
- First question: Forex Trading In India Legal?
- The SEBI Authority
- Is Forex Trading In India Legal Or Illegal?
- What is Forex Trading?
- Premium Brokers
- Explanation of How Forex Trading Works
- Is Forex Trading Is Legal In India- Forex Trading For Beginners
- RBI Rules For Forex Trading In India Is Legal Or Not
- Trading with SEBI Forex Brokers in India
What is Forex Trading in India? Legal or not?
If you are an Indian, you have some hesitation and contradiction about legal aspects(Forex Trading In India Legal) of Forex Trading. So, I started so many investigations to find the right answer if Forex Trading is legal or illegal in India.
I am not a legal expert, so my writing is totally based on short talks with local experts, reading the government regulations on ETF and Futures trading.
Before writing this short commentary I did not consult with any lawyer.
As there is sovereignty issue, forex has a little supervisory role regulating it’s action when there is involvement of two currencies.
Actually, the foreign exchange market is nothing but a global decentralized market for the trading of currencies. Forex trading includes all types of buying, selling, exchanging currencies at current or determined prices.
The foreign exchange market helps to converse the currency and assists in the international trade and investment.
Using this method, one can import any goods from the United States or export any material to European Union.
Is Forex trading illegal in India? Can Indians trade Forex Legally?
One can easily transfer the dollars to Euros or any other currencies.
First question: Forex Trading In India Legal?
This is a very common and straightforward question. Forex Trading In India Legal?
The answer is not very difficult. One can trade forex in India with Indian Exchanges like BSE, NSE, MCX, NCDEX, MCX-SX, NSEL. Indian Exchanges offer USDINR, JPYINR, EURINR, GBPINR pairs for forex trading purposes.
How To Start Forex Trading In India?
If you are an Indian resident, you cannot trade all forex instruments as Indian Government does not allow it.
We can say that global forex market is not global in India. But we know that the foreign exchange market is a decentralized global market to allow trading of currencies like selling and buying an exchange of currencies.
The SEBI Authority
There are so many countries who take this decentralized market as a sovereignty issue. Due to this sovereignty issue, Indian Government has limited Forex Trading in India.
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There is a big point of forex trading. The forex exchange market helps both international trade and investment through currency conversion.
For example, one can import any goods from the United States or export any material to European Union.
One can easily transfer the dollars to Euros or any other currencies. Actually many retail traders do not know that the foreign exchange supports direct speculation.
In this respect, we can remember Leo Tolstoy who once said: ” writing laws is easy, but governing is difficult.”
The Indian Government has not prohibited to trade Forex, the Government only limited the trading for Indian residents.
Indian Government allows access to Indian Exchanges such as BSE, MCX-SX, NSE and if you are trading through these Indian brokerages, it is entirely legal. The tradable instruments are GBPINR, JPYINR, USDINR, EURINR.
On 10th December 2015, Reserve Bank of India allowed exchanges to offer cross currency futures contracts and exchange-traded currency options in three more currency pairs.
The name of the pairs are GBPUSD, EURUSD and USDJPY.
Bosnia & Herzegovina
British Columbia (Canada)
China (Strict regulations and events total ban)
Sri Lanka (Recently relaxed but not confirmed)
India is not the only country to restrict forex trading. Actually, forex trading is restricted in about 20 countries globally. These countries make propaganda for the citizens to stay away from the forex trading whether it may be online or offline.
Related posts: Most successful Forex Trading Strategy For Beginners
In India trading with other pairs other than defined exchanges of RBI is illegal under FEMA Act(Foreign Exchange Management Act).
As a newcomer in forex trading, you should know that in India forex trading through an online broker is a non-bailable offense. RBI claims that they made the restrictions to prevent retail investors or traders from losing big time.
Is Forex Trading In India Legal Or Illegal?
Therefore, many Indian citizens believe that the main reason to prohibit forex trading is to stop the currency outflow. As there is a big change in Indian economical condition, RBI must ease their limits in the coming period.
Why Is India Limiting Forex Trading?
To get the answer to this question we have to look through the statement of RBI.
So, it is our first duty to study the logic of Reserve Bank of India (RBI) to prohibit forex trading.
RBI always tries to increase the foreign currency. In this respect, there is a big problem of forex trading. When one trades with EURUSD with non-Indian brokers, if he/she loses, he/she would have to buy USD from RBI. This increases the lack of foreign currency in reserve.
If all the people of India trade forex with foreign brokers and traders outside India and lost everything, RBI stands to lose a substantial amount of US dollars. Indian Government forced to buy more and more US dollars to counteract this outflow of US dollars.
What is Forex Trading?
This is the simple logic of prohibiting forex trading in India.
In India, forex trading is not allowed. If someone is found trading on the forex market by the Reserve Bank of India’s representative, he/she must be published for the violation of laws.
Involving in forex trading is legally considered as a crime.
In some cases, it is a non-bailable offense.
What Is Base Currency And Counter Currency?
The most popular traded currency pair is the relation of the euro against the US dollars, designated as EUR/USD.
EUR/USD 1.2500 means that one Euro is exchanged for 1.2500 US dollars. Here the base currency is EUR and counter currency is USD.
An Indian can not trade in this pair.
By paying dollars India is already buying crude and gold from foreign countries. When Indian Government needs to import anything, it has to sell INR and buy US dollars.
Due to lack of demand and oversupply, US dollars become stronger and our INR loses its purchase power.
RBI allows forex trading only in INR based pairs, which is in turn traded within Indian citizen only. For this reason, no INR can leave the country.
However, there are legal ways to trade.
Explanation of How Forex Trading Works
An Indian can legally do forex trading using the exchanges like BSE, NSE, MCX, NCDEX, MCX-SX, NSEL or he has to be an NRIcitizen(Non-Resident Indian). RBI allows every Indian including banks, financial institutions to do forex trading in currency pairs.
In this respect, the main currency pairs are EURINR, GBPINR, USDINR and JPYINR. So, if you do forex trading using these, it would be totally legal, as per RBI rules and regulations.
The commonly used exchanges on the national level are Multi Commodity Exchange(MCX_SX),National Stock Exchange(NSE). Most commonly used international exchange is COMEX.
Also read: Best Stop Loss Take Profit Strategy For Share Trading
Do Your Homework First:
If you are a newcomer to forex trading, you should do homework.
Is Forex Trading Is Legal In India- Forex Trading For Beginners
Because your agent will never assure you that forex trading in India legal or illegal in your country. Rather they may say that there are a number of traders that they have got in our country.
If there is any problem in the transactions, they would not take any responsibility.
So, it is your duty to check all the rules of the country before taking further steps.
RBI Rules For Forex Trading In India Is Legal Or Not
Without knowing rules and regulations if you take any step you may have to go to jail.
Trading USD vs EUR in India:
If anyone is willing to trade in forex, he/she cannot trade directly, as Indian Government does not allow anyone to trade. Suppose you want to trade EURUSD, USDJPY or EURJPY or other possible combinations, but your local exchange does not offer such instruments.
You may trade USDINR and EURINR that the INR gets eliminated and you may technically trade EURUSD.
Conclusion:(Forex Trading In India Legal Or Illegal)
Forex trading in India legal: As you are a trader, you should know all the rules and regulations of trading. The Government is always lagging behind the illegal Traders not the legal traders.
Trading with SEBI Forex Brokers in India
So, you need not to be worry, if you are a legal trader.
One can trade USDINR and EURINR in such a way that INR gets eliminated and we can trade EURUSD.
This may increase transaction costs. Also, there may be a lack of liquidity. On the other hand, if you are strict to do trading in forex, you are always welcome to get around this barrier make your desired position. In any business, patience is must and before entering any new business, you should have a total knowledge about the topic.
If you send money to out of India to forex brokers, it’s illegal and liable for punishment, fine etc.
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