Legal forex trading in india
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India, one of the most populous countries in the world, is also said to be the 16th largest forex market on the globe. Despite it being one of the most fluid markets, the legal status of currency trading in India still causes confusion in many people.
When is the history of the Indian FX Market? Upon the permission of the Reserve Bank of India RBI , local banks commenced intra-day currency trading and the Indian foreign exchange market sprang to life. In the coming years, the Indian rupee INR underwent many changes and more economic reforms were introduced to balance out the inflation differential, level the INR against other currencies, and maintain competitiveness.
The Securities and Exchange Board of India SEBI , which now protects forex securities issuers, investors, and forex-related agencies, was established in for the purpose of regulating forex activity in India.
This autonomous authority also protects forex securities issuers, investors, and forex-related agencies. In addition, in , a committee was appointed to further develop the forex market in the country. As the result of its actions, banks were granted the freedom to fix their trading limits, borrow and invest funds in foreign markets up to certain limits, and use derivative products to manage assets and liabilities.
Corporations were given approval to rely on instruments such as interest rates and currency swaps in the international currency market. It is interesting how Indian people living abroad are said to have substantially influenced the expansion of the Indian forex market although locals initially seemed to show little interest in currency trading. The FX market in India keeps growing and more and more people seem to be drawn to foreign currency trading. Who is eligible to trade currencies in India?
The regulation excludes the possibility of foreign institutional investors and non-resident Indians trading in the country. Why is currency trading questionable in India? Where can one trade currencies in India? While trading currencies with international brokers is illegal, Indian citizens can legally trade currencies through specified foreign exchange trading platforms and all forex brokers and stock exchanges must be licensed by SEBI to be able to operate within India.
Which currency pairs can be traded in India? What are the consequences of legal violations? However, non-resident Indians will not be persecuted for doing foreign exchange trading in India. Generally, one would need to violate the FEMA law drastically to draw any attention.
While choosing a broker in India, you should make sure that it has approval from the local Indian exchanges as mentioned before. One good thing I find about the local Indian brokers is that they offer forex education resources in local languages Hindi, Marathi, Punjabi, etc. Indian Forex Reserves Being curious to find out the logic behind various restrictions on forex trading in India. I started my research and came across the logic behind such restrictions.
The Indian government intends to keep its foreign reserves at optimum level and it is the top-most priority of the Indian central bank. Low foreign reserves mean a current account deficit. Therefore, India restricts traders to be involved in forex trading, eliminating the likelihood of a decrease in foreign reserves. Another reason that is often mentioned for such restrictions is that the Indian government wants to protect its citizens from losing their hard-earned money in forex trading.
For readers having no finance background, let me also clear the concept of forex reserves. Forex reserves refer to all remittances that are received against services rendered or products sold. The government of India keeps all such funds in a current account, also known as the foreign reserves. The government of India sees foreign reserves as one of its lifelines and discourages any business or action that results in a decrease of forex reserves. How to trade forex legally in India?
Forex trading is legal in India as long as you trade INR based currency pairs with local forex brokers. It is prohibited to carry out spot forex trading in India. Traders are allowed to perform forex trading in derivatives such as options, futures, and spread betting etc. In order to trade forex legally in India, you should open a trading account with any local broker in India that is fully regulated by the government exchanges. The laws concerning forex trading in India were even more strict in the past years.
In , the RBI introduced some relaxation and allowed traders to access a few more pairs to trade. However, India still needs to bring some leverage to the existing forex trading framework.
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