When it comes to currency trading, it has always been controversial in India. If you are a new trader, you must be very confused regarding the legality of trading in this country. The main question is if it is legal to trade, and if yes, then how to trade forex offshore currencies legally in India. First, we need to see which currencies are allowed to trade, and what the financial regulatory bodies in India have to say about this.
What Is Forex Trading Or Currency Trading?
The term forex is the short form of foreign Exchange Market that is also referred to as FX. It is a decentralized global market and it belongs to more than over the counter section (OTC). You must have already heard about the term OTC. Also known as off-exchange, OTC is a different type of market where trade takes place between two parties directly without an exchange monitoring it. Forex is the largest and most liquid market in the world with an average daily trading volume of more than 5 trillion dollars. All foreign countries are traded in this market.
Background of forex trading in India
There were not many restrictions on trading earlier. So, brokers and investors could trade easily. After a few years, the foreign exchange reserves of the country became low. This is when the Foreign Exchange Regulation Act (FERA) was introduced. According to FERA, any transaction not permitted by RBI is prohibited. However, FERA was not successful in putting restrictions on trading activities, and it led to a downfall of the INR in 2013. So, after that, RBI became active and started putting rules and regulations on forex trading, and Foreign Exchange Management ACT (FEMA) replaced FERA.
Is forex trading in India legal today?
To answer it in a word, yes, it is legal to trade in India. However, the scope of trading is very limited because of strict regulatory restrictions. As a trader, you can trade currencies with regulated brokers only. There are many popular trading platforms across the world, but they are illegal in this country if they also execute binary options. Since binary trading is not permitted in India under Forex Exchange Management Act (FEMA), the whole platform executing it goes out of the question. According to the Reserve Bank of India’s Liberalized Remittance Scheme, no individual can use the money transferred abroad for certain purposes or to offer margin money for trading. However, traders can trade currencies with regulated brokers. Keep in mind that you cannot trade any currency pair that does not involve the INR except for three cross currency pairs.
Currency pairs allowed for trading in India
In India, traders can trade currency pairs involving only four currencies except the Indian Rupee (INR). These currencies are US Dollar (USD), Great Britain Pound (GBP), Euro (EUR), and Japanese Yen (JPY). So, the currency pairs allowed in this country are USDINR, JPYINR, EURINR, GBPINR, EURUSD, USDJPY, and GBPUSD.
Currency trading regulatory bodies in India
Forex trading in India is trading by the Securities Exchange Board of India (SEBI), and the Reserve Bank of India (RBI). The RBI manages foreign exchanges and brokers under FEMA Act – 1999. As stated in the FEMA Act, traders must sign up with SEBI-regulated brokers if they want to trade forex in this country.
Legal implications on illegal currency trading in India
If you trade currency pairs with a broker that is not regulated, then it is an offense in India that does not even allow bail. Anyone guilty will illegal currency trading in this country can face serious legal consequences, which includes financial surcharge and imprisonment.
How to start trading in India?
When forex trading was introduced in India earlier, there were foreign brokers only such as FXCM, OANDA, GCI, and AVA. After everything came under control of RBI, investors are able to trade through Indian SEBI registered broker only. At present, if you want to trade in currency pairs, you need to have a Demat account. Trading is legal within Indian Exchanges, MCX-SX (Multi-commodity exchange), BSE, and NSE. For successful forex trading, you need to keep the following points in mind:
- Forex trading is same as equity trading. The only difference is that share value matters in equity trading, and exchange rate matters in forex trading.
- The market is open for 24 hours a day and 5 days a week all over the world. However, in India, the market gets closed at 5 pm. Therefore, if you want to trade, it is always recommended to go for intraday rather than position trading.
- Investors should have enough knowledge and experience concerning market and price action before they start trading.
- Always make sure to be aware of the scams in the market.
- The rules of RBI about trading are not for NRIs to follow. They can trade with any foreign broker. Only an Indian resident needs to follow the RBI regulations and trade with a SEBI registered broker.
Things to Know About Trading In India
Before you start trading in India, go through these important points mentioned below:
- Although forex trading in legal in this country, it is still considered a risky trade and investors should remember that.
- It is a good idea to consult a lawyer before trading forex in order to know the procedure well.
- As a trader based in India, investors must invest their money through SEBI forex brokers approved by the Government.
- SEBI imposes restrictions on the types of trading, and maximum leverage availability.
- The majority of brokers in India allow traders to trade INR related currency pairs only.
- In terms of analysis, forex trading analysis is close to equity analysis in similarities. Both fundamental and technical analysis routes are followed here.
- Without the approval of the Indian authorities, trading with an international broker and withdrawing money from an Indian account to deposit it to an overseas bank account is strictly against the law of this country.
Best India Based Forex Brokers
The best brokers for traders based in India include:
1. FP Markets
FP Markets offers a trading platform with a robust access to global markets. The broker fastens the execution of forex trading by using a NY4 server.
Features
- Dedicated mobile apps
- Multilingual customer support
- Modern trading platforms like MT4 and MT5
- Advanced client portal to monitor trading decisions live
- Fair trade practices avoiding price manipulation, dealing desk and requites
Start trading with FP Markets by clicking here.
2. FXTM
One of the best brokers in India, FXTM makes trading easier for beginners with seminars, video tutorials, and more. With its fast trade execution, traders can make informed trading decisions.
Features
- Better access to global markets with a variety of financial instruments
- Multiple types of trading accounts
- Modern trading platforms and designated apps for mobiles and tablets
- Invest feature to help beginners copy investment practises done by pro traders
- A global research team with in-depth analysis of market conditions
Visit the FXTM website to open a trading account.
3. XM
With spreads as low as 0.6 pips, XM offers customised guidance from personal account managers. The broker offers free access to webinars and forex market research.
Features
- A wide range of video tutorials and guidance for beginners
- An access to trading indicators on multiple devices
- Same quality to all customers, regardless of their capital investment
- Daily updates on the market conditions
Click here to start trading with XM forex broker..
4. AvaTrade
The user-friendly and intuitive interface makes AvaTrade ideal for beginners. Traders are protected from a losing position with its AvaProtect feature.
Features
- Low spreads for different transactions to maximise profit
- Modern trading techniques like short-selling, restriction free scalping, and unlimited netting
- Several trading platforms including Mt4, MT5, AvaTradeGo, and WebTrader
- Tutorials and eBooks on useful trading tactics
- Multilingual customer service through different social media channels
Click here to open a trading account with AvaTrade.
Conclusion
Despite strict regulations, currency trading is becoming more and more popular in India over the last few years. However, you must always be cautious before taking a step towards trading. A mistake will not only lead you to financial loss but doing something illegal will also bring consequences. Keep one more thing in mind, since many international brokers offer local deposit methods, Indian traders can trade with those brokers by opening a trading account.