You have seen multiple news regarding illegal forex trading scams busted by police in the newspaper. 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, if forex trading is legal in India or not.
So, today you’ll get facts based answer to this question “is forex trading legal in India?”.
Without any further ado, let’s start.
Is Forex Trading Legal in India
Yes, forex pair is legal in India but you have to abide by some conditions –
#1. Currency Pairs You can Trade in
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.
Means, according to SEBI circular 2017(link at the bottom), you can now trade in 3 more currency pairs
You might don’t know but these are the highly volatile currency pairs and attract the maximum trading volume globally.
#2. Forex Broker You can Sign-up with
You can either go with 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 as compared to 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, 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.
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What Makes Forex Trading Illegal in India
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.
#1. Contract for Difference (CFD)
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 are not owning 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.
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#2. Binary Trading
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.
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Punishment of Illegal 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.
- Imprisonment (u/s 13 (1C)) – the forex trader found guilty can be punishable with imprisonment for up to 5 years and with a fine that we’ll discuss in the next point.
- Financial charges (u/s 13 (1A)) – the trader has to pay 3X of the amount involved in the violation. For example, if you have been found guilty of Rs. 10,000 forex trading, you’ll have to pay Rs. 30,000 as a financial penalty.
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 –
- Make sure that the trading platform is a SEBI registered broker
- Only trades in approved currency pairs to avoid any legal action
Then you can do forex trading without any fear of getting legal action against you.
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#1. Who Regulate Forex Trading in India
RBI and SEBI jointly regulate forex trading in India under the FEMA act 1999.
#2. What is 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.
#3. How can I Legally Trade Forex in India
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.
#4. Which Forex Broker is SEBI Approved in India
In our research, we have found 4 international forex brokers to be registered with SEBI. These are –
- Interactive Brokers
- Alpari International
However, registration with SEBI doesn’t permit you to trade in other than approved currency pairs, CFDs, and Binary trading.
#5. Can an NRI do forex trading
An NRI can do forex trading only if the laws of the country it is residing in permits forex trading.