Being from India, I had many doubts about legal aspects of Forex trading. So, I took the opportunity to investigate and find answers to if Forex Trading is legal or illegal in India.
Thus, this short research is based on a number of short talks with local experts, reading the government regulation on ETF trading and Futures trading to find out whether or not Forex Trading is legal or illegal in India.
Common and the most straight forward answer for this question is, of course: If you are an Indian resident and wish to trade forex, you cannot trade all the instruments as mentioned above.
Hence, in short global Forex market is like not so global in India. Although, the foreign exchange forex market is decentralized global market to allow the trading of currencies buying, selling exchange of currencies , there are countries seeing this decentralized market as a sovereignty threat.
Thus, due to sovereignty issues the Indian government has limited Forex trading in India. The foreign exchange market helps both international trade and investments through currency conversion. Many retail traders may or may not know that the foreign exchange supports direct speculation. The evaluation relative to the value of currencies, speculation based on the interest rate differential between two currencies.
So, the government of India has not forbidden to trade Forex, but limited the trading for Indian residents to only trade currency pairs bench-marked against INR Indian Rupee. But, the Reserve Bank of India on the 10th of December allowed exchanges to offer cross currency futures contracts and exchange-traded currency options in three more currency pairs.
The RBI allowed exchanges to offer cross currency futures contracts. If everybody in India trades forex with Foreign brokers and traders outside India, with the notorious nature of trading where the majority of traders eventually lose, RBI stands to lose a substantial amount of US dollars.
Hence, the simple logic why Forex trading in India is limited. There is however a big disadvantage of trading Forex via crosses this way and it is the increase in transaction costs and there is often lack of liquidity. Meanwhile, you should note that CFD platforms are not legal in India, thus from a broader perspective trading on leverage is not allowed in India.
You as a trader should know your limits and act accordingly. So far, the government has not really cracked down on retail traders however there has been major crackdowns on a number of brokers illegally operating in India. There has been regulated and unregulated brokers trying to establish their branches in India under different names, from education academies to training schools or consulting agencies. These entities often get away with their activities from a few months to a few years until someone gets to report them to the local authorities.
Such as the xDirect Indian office raid earlier in India is not the only country to restrict Forex trading. Indeed , Forex trading is restricted in about twenty countries globally. These countries promote propaganda to push their citizens away of Forex trading online or offline. With many online brokers who misguide retail investors claiming forex trading performed legally through them. However, many India citizens believe that the main reason is to stop the currency outflow.
I meanwhile, believe that RBI will ease in their limits in the coming period as India is going through the financial change. Log in Lost Password?
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