You have seen multiple news stories in the newspaper regarding illegal forex trading scams busted by police. You can see a few of them in the snapshot below.
On the other hand, advertisements of various forex brokers attract you to make a fortune with forex trading. Thus confusing a regular investor whether forex trading is legal in India or not.
So, today, you’ll get a basic answer to this question: “Is forex trading legal in India?”.
Without any further ado, let’s start.
Table of Contents
Yes, forex pair is legal in India, but you have to abide by some conditions –
You can trade forex either with INR pairs that include USD-INR, EUR-INR, GBP-INR, and JPY-INR or trade in the cross-currency pairs of the above said foreign currencies.
This means, according to SEBI circular 2017(link at the bottom), you can now trade in 3 more currency pairs.
You might not know, but these are the highly volatile currency pairs that attract the maximum trading volume globally.
You can go with either an Indian broker or any global broker, depending on the benefits you need, because a global broker offers foreign currency pairs for trading and better margin leverage than Indian brokers.
The only thing that you can check out is the broker should be SEBI approved; otherwise, your forex trading becomes illegal.
Forex brokers like OctaFX and Interactive Brokers have been registered with SEBI now, but make sure you do trading as per SEBI guidelines.
Let’s discuss what makes forex trading illegal in India that you can avoid, especially trading with international brokers.
Also, check – HDFC forex card charges
Signing up with an unauthorized broker and trading in anything (CFD, binary trading) other than allowed forex pairs is illegal.
Trading through an unauthorized broker is a criminal offense that is non-bailable in nature.
The reason for strict restrictions on trading with unauthorized brokers is that most unauthorized brokers deal in CFDs or Binary trading, which is strictly forbidden in India. Neither trader nor broker can do CFD trading or binary trading.
Contracts for difference (CFD) is an agreement between an investor and broker, which defines that the broker will buy the underlying asset on behalf of the investor and will pay the difference between the asset’s current value and the value of the asset at the time of contract.
Remember that the investor never actually owns that asset but earns money based on the price change of that underlying asset.
Since you do not own the asset, and the contract is purely between the broker and investor and not on the exchange, there are chances that you can lose your money if the broker goes bankrupt or cheats you in the absence of regulatory authority.
Check out – Rock West Forex Broker Review
Similar to CFDs, binary trading is also banned in India. Binary trading is betting on the result of a currency pair’s price movement in yes or no within a given timeframe, just like a Casino.
For example, if you trade on EUR-USD in binary options, you’ll bet the EUR go up at 1.14 USD, if it does, you get the money, otherwise, you lose it.
The bet happens purely between you and the broker.
Since there’s no third party involved in the deal, binary forex broker doesn’t lose anything, they just manipulate trader to lose the bet and themselves earn profit. Unlike, a stock market where a broker provides a platform for buying and selling of shares between two parties.
As per FEMA Act 1999, transferring money outside India for betting, speculation, or sweepstakes (includes this binary options/betting) is not permissible.
Since you know about what is illegal forex trading in India, let’s talk about the legal consequences of illegal forex trading in India.
Also read – Best time for forex trading in India
RBI is very strict under the FEMA act 1999 which empowers authorities to punish the trader for illegal forex trading who can be sentenced to jail with heavy financial charges.
Section 13 of FEMA 1999 has the provisions of punishment which could be imprisonment or financial charges or both.
RBI has also issued a circular in 2013 allowing banks to block credit card or bank account of the customer transacting money in illegal forex trading and report to senior officials. Here’s the excerpt –
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So, before jumping into forex trading keep 2 things in mind –
Then you can do forex trading without any fear of getting legal action against you.
Check out – Best forex cards for students in India
RBI and SEBI jointly regulate forex trading in India under the FEMA act 1999.
Foreign Exchange Management Act was introduced in India in 1999 to replace FERA Act (Foreign Exchange Regulation Act) to facilitate external trade and have a liberal economy in India.
FEMA’s aim is to facilitate global trading as well as payments in a hassle-free manner with clear regulations.
You can legally trade forex in India (as per SEBI’s guidelines) by trading in 7 pairs mentioned below –
Secondly, the forex broker should be registered with SEBI.
In our research, we have found 4 international forex brokers to be registered with SEBI. These are –
However, registration with SEBI doesn’t permit you to trade in other than approved currency pairs, CFDs, and Binary trading.
An NRI can do forex trading only if the laws of the country it is residing in permits forex trading.
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