Trading forex in India is a challenging job and that is something that all those who have traded FX in India would generally agree with. There is still a lot of confusion of what is allowed and what is not allowed as the regulators and the RBI have not laid out in black and white on the regulations and hence the banks and other service providers, including the brokers themselves, are not sure what to make of it.
But fx trading in India continues to thrive and though the traders, both new and old, aren’t very sure of the regulations as such, they continue to trade on the platforms of brokers that continue to do business in India.
Is Forex Trading Legal in India for an NRI?
The rules and regulations that have been framed by the RBI in India are true and applicable for all Indians. As an NRI is technically an Indian as well, then the rules would apply to him/her as well. The law states that speculation on FX in trading platforms with brokers who are not in India and who do not conform to Indian laws is illegal as far as the Indian authorities are concerned.
So, if the NRI is in the US and has been trading there for some time and then comes to India, either permanently or for a holiday, and continues to trade in forex in India, then in strictly legal terms, what he is doing is an illegal activity as far as India legal system is concerned. Also, things might be easier for the NRI if he does all the deposits and withdrawals directly with a bank that is not in India as the RBI is worried mainly about funds flowing in and outside India. So, as long as Indian banks are not used for such transactions with FX brokers, trading should be generally safe.
What’s the Best Forex Broker for Trading in India?
Indian forex traders, of which there are many, do not have many choices when it comes to choosing the best forex trading platform in India. For starters, not many brokers have branches in India. There is no homegrown FX broker in India, at least officially. This is because FX trading is not fully legal in India and it is still a grey area and so it can be interpreted by anyone in any manner as they deem fit. This is why the Indian traders are still not very sure and continue to mull on how to start trading forex in India.
It is due to this fact that many FX brokers and branches in India have been hounded by local authorities and many have shut down and exited India for good as it didn’t make business sense for them to be constantly under the threat from authorities and carrying on business in what is a grey legal area at best. There would be a few which may be doing business under the radar but the ones that are really doing business are the small white labels which are homegrown and many IBs who do have a large network and they do business with specific foreign FX brokers and they do have a good understanding of how to make it work in India.
It is such IBs who help and play a major role in the Indian forex trading scene as they build large networks of traders under them and help them to transact their funds and help the traders with advice and trading as well. Of course, when such things happen in an unregulated industry, it leads to a lot of scams as well and that is the bane of this industry in India at this time.
Some brokers like Exness have realized the size of the Indian market and have tailored funding methods that suit Indians and they do good business in India.
Who Regulates Forex Trading in India?
In India, forex trading is regulated and controlled by the Reserve Bank of India and the Securities and Exchange Board of India (SEBI). They are the ones who generally frame the rules and since they control what the banks can and cannot do, they can keep the flow of funds under control and this has helped them to stop FX trading in India to a very large extent. The Indian forex market still has a huge potential to grow but the authorities have chosen to keep it under control for now. It will probably take a lot more time for the government and the regulators to free up this space as they need to set in place rules and regulations and also see how they can get the traders to pay taxes and still maintain control over all these activities.
Forex trading happens on the Indian exchanges though but this is restricted to specific INR pairs and a large part of that is prop trading.
Pros and Cons of Forex Trading in India
There aren’t many pros to forex trading in India. There cannot be many when it is not considered to be legal and still the laws surrounding it are not fully understood by even many of the local authorities and hence freely open to interpretation as per the situation. This is difficult for anyone to manage let alone for traders who are already under a lot of pressure from their trading. If at all we scrounge for the cons, it could be said that the forex trader community is very strong and the bonding is very strong among the traders in different regions as they know that they need to stick together in times of trouble and they also need to share news and developments from across the country so that the others can benefit from the same.
As far as the cons, the biggest one has already been stated many times and that is the fact that FX trading is not legal in India and the laws are still very grey which means that no one is sure of whether they can carry on FX trading or not, not even the authorities. This is very difficult to deal with as the traders would feel a sword always hanging above their heads and would not be able to trade in peace under such circumstances.
Can I Trade Forex Internationally from India?
The main problem as far as forex trading in India is considered is how the trader would be able to deposit and withdraw funds. If the broker is outside India, then the options to fund the account become very limited. In such situations, the trader could opt for a wire transfer of their funds to the bank account of the broker but in such cases, the foreign exchange management act would come into the picture and the banks are very strict about it. Many forms need to be filled out, many permissions that need to be taken, proof should be shown that you are going to use the funds only for legal purposes and this is how the Indian government makes it difficult for the traders to send and receive funds if the broker is located internationally.
Most of the traders would rather not going through all these procedures to fund their account and would prefer to just sit it out and look out for cryptos or other instruments for trading or look for other brokers who provide local methods of deposits and withdrawals as well. This is the suggested and preferred approach for forex traders in India. It is only after the traders get over this major hurdle that the trader would be able to focus on his own trading, strategies, etc and as can be noticed, this is a huge amount of pressure on the trader, especially if it’s a newbie.
Forex India: An Overview of the Market and Can I Trade Forex in India?
As far as the proper, legal, and regulated forex market in India is concerned, this is present only on the exchanges. There are 2 major exchanges which are the NSE and BSE and currency trading has been started in these exchanges only about 10 years ago. All the trading that happens in these exchanges is against the Indian rupee which means that the base currency is the rupee. For now, the trading happens only in four currency pairs which are the rupee against USD, JPY, EUR, and GBP. Of these, most of the trading volume is on the USDINR pair, and this constitutes more than 80% of the total traded value in the currency markets in India.
The other pairs do not have much liquidity and it is expected that things will pick up as time goes on. Most of the trading that happens in this segment is what is called prop trading which is basically trading by large companies that are involved in export and import and hence would be taking positions that will be used as a hedge against the risk of their exposure. It is only in recent times that the retail trading volumes have also started picking up in this segment but still there is a long way to go as the traders still come to terms with this market and are looking for strategies to tame the market consistently. As for platforms, the exchanges still do not have a proper forex trading app in India.
The traders who are exposed to the full range of the forex market would be in for a shock and feel tied down when they are forced to choose between just 1 or 2 instruments to trade from at the exchange and it is likely to take them a while to come to terms with that. They would wish that the market expands soon within India as the potential for growth in the forex trading market is huge and it is believed that the government has not gone enough to tap into this potential.
Forex trading in India is tough. There is no second thought about this and this is also something that all the forex traders in India would agree on as well. In a way, it is kind of a pity as the potential among the trading community is huge and this also presents a lot of opportunity for brokers and other associated businesses. The government there has not specified the exact reasons why it is not allowing the legalization of forex trading in India but it is generally believed that it is worried about losing control and oversight over such funds that are used for trading and also about AML as well.
The forex trading industry has tried to clean up its act and get together as a group so that they can make proper representations to the authorities and they would then be taken seriously but so far, such efforts have not borne fruit. The industry continues to be scattered all around the country and most of the brokers have gone underground and have made sure that they stay under the radar to ensure that they don’t get into any kind of trouble.
The market is dominated by small brokers who are looking to scam the gullible traders with offers and promises of high returns so that they can make a quick buck and then disappear. There are very few large brokers, if any, with branches in India, and most of the large brokers prefer to create new local deposit and withdrawal methods for the traders in India so that they can make trades and perform transactions also. Over the years, the number of such methods has grown and so it has to be said that the lives of the forex traders have been made relatively easy now than what it was several years ago.
But the fact that still there is no regulation, there is no clear laws laid down for trading is something that continues to plague the market and this puts off large investors and traders from entering into this industry. They are needed for the industry to grow but that just isn’t happening at this point and it has been like this for quite some time now with no further developments.