Forex is a high-risk market. It is not cleared and has always a controversy that forex trading in India is legal or not. If you are really interested in opening a Forex account in India, make sure that you really understand the terms and the overall regulation.
Confusion may happen in the Indian Forex market because of the confusing policies and principles issued by the RBI (Reserve Bank of India), the central bank in India. There are certain limitations and restrictions about Indian Rupee trading with the other foreign currencies as well as terms for speculative investments.
It has been observed that overseas foreign exchange trading has been introduced on a number of internet /electronic trading portals luring the residents with offers of guaranteed high returns based on such forex trading…any person resident in India collecting and effecting / remitting such payments directly /indirectly outside India would make himself/ herself liable to be proceeded against with for contravention of the Foreign Exchange Management Act (FEMA), 1999.
Here is a complete list of forex brokers who allows forex trading in India.
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The Various Things in Indian Forex Laws and Regulations
The Reserve Bank of India (RBI) is very strict about forex trading and they always discourage people to invest this high-risk market. But there are many forex brokers who helps Indian trader for currency exchange.
RBI Regulated Forex Brokers
The RBI issues some official regulations that really determines and controls the Forex implementation in the country. For example, according to RBI, the allowed amount of money for the transactions and exchanged with the Indian Rupee per person is $200,000 max. There is also a certain regulation stating that speculative purpose shouldn’t be included in the currency exchange transactions. In short, Indian residents may interact in the financial market. Furthermore, for currency futures as long as they follow the regulations and limitations posed by the government.
The policies and regulations by the RBI can change from time to time. Anyone interested in the Forex exchange should be able to follow it. Otherwise, they are always welcome not to participate in the trading platform.
Moreover, RBI stated that any Forex transactions done through the internet or online trading portals aren’t allowed under the FEMA (Foreign Exchange Management Act) issued in 1999. The Bank has confirmed that such statement is true but with emphasis that the residents aren’t allow trading in the overseas Forex market. But they say that Indian residents are allowed to trade in options contracts or currency futures recognized by SEBI (Securities and Exchange Board of India) with a requirement that they should follow to conditions specified and issued by the RBI.
SEBI Regulated Forex Brokers
The Securities and Exchange Board of India (SEBI) is a Government-appointed regulatory board, that received its statutory powers in 1995. It has the authority to regulate and supervise all financial entities dealing in the securities market. SEBI is one of the most influential regulatory organizations in the world that takes the matter of regulating the security markets quite seriously indeed.
Indian Forex traders can not suppose to indulge in any currency pairs that do not involve the INR as the base or quote currency. Converting the INR to USD or other currencies for the sake of trading the FX markets with overseas Forex brokers is considered to be an illegal activity. Because of that, traders may need to pay the fine or even get into imprisonment. Hence, SEBI regulated Forex brokers are only allowed to offer INR based currency pair options for USD, EUR, GBP, and JPY.
Main guidelines for Indian traders
- First of all, trading in currency derivatives on recognized exchanges had permitted by RBI and SEBI since 2008.
- Currently, traders can trade in three stock exchanges; these are the National Stock Exchange (NSE), MCX-SX and the United Stock Exchange (USE).
- Initially, only futures for the INR/Dollar pair allowed; later more pairs were introduced. At present trader can trade in derivatives of Dollars, GBP, Euro and Japanese Yen.
- Currency options are also available with underlying as US Dollar /Indian Rupee (USD-INR) spot rate.
- Derivatives are traded on margin, It is required to deposit an initial margin with the exchange through your financial intermediary.
- Furthermore, contracts are always settled in cash and in Indian Rupee; settlement is guaranteed by the exchange.
- The futures have a cycle range from 1 month to 12 months; for options, it is three months.
- Finally, The lot size for futures is 1000 per unit except for the JPY/INR pair where the lot size is 100000 units.
Finally, a huge number of skilled workers from India is working around the world. Because of that, large numbers of foreign currencies come into India by way of foreign direct investments through its non-resident citizens. It is advisable that interested people in the Forex trade should only trust the regulated brokerage firms. Despite the confusing terms and regulations by the RBI and SEBI, you can always follow the rule and guidance to the letter.