Forex Trading in India

Forex Trading in India

Forex Trading in India 2021

For decades, India has had an intriguing and complex relationship with foreign exchange and capital controls. Ever since World War II, India struggled to maintain sufficient foreign exchange reserves. To correct the deficiency of foreign currency reserves, India adopted several draconian capital control measures to limit how Indian residents may spend their money overseas. Despite numerous reforms and liberalization efforts, the remnants of these strict policies have seeped into the lives of everyday traders and investors.

Top Forex Brokers in India

fxchoice
Broker TypeECN
RegulationsIFSC
Min Deposit$100.00
Account Base CurrenyUSD, EUR, GBP, AUD, CAD, Bitcoin, Gold, Bitcoin Cash, Litecoin, Ethereum and XRP
Max Leverage 200:1
Trading PlatformsMetatrader 4/5
xm trading
Broker TypeMarket Maker
RegulationsIFSC, CySec, ASIC, DFSA
Min Deposit$5.00
Account Base CurrencyUSD, EUR, GBP, JPY, CHF, AUD, RUB, PLN, HUF, SGD, ZAR
Max Leverage888:1. *Leverage depends on the entity of the group and the financial instrument traded.
Trading PlatformsMetatrader 4/5, Webtrader
ic markets
Broker TypeECN
RegulationsASIC, FSA, CySEC
Min Deposit$200.00
Account Base CurrencyUSD, AUD, EUR, GBP, CAD, JPY, NZD,CHF, SGD, HKD
Max Leverage 500:1
Trading PlatformsMetatrader 4/5, cTrader, Webtrader, API Trading, MAM / PAMM

India’s strict foreign exchange policy

Foreign exchange reserves play an essential role in maintaining a country’s sovereign currency’s stability, especially if it’s an emerging economy, which India still is, depending on who you ask. 

Although the United States has removed India from its internal list of developing nations.[1] 

However, India remains a developing nation according to the International Monetary Fund’s latest World Economic Outlook Update from January 2021.[2] 

Being considered an emerging market or developing economy amplifies the importance of backing up a country’s currency with reserves in currencies which have greater stability in the international community, such as US dollars, euros, British pounds, and others. 

As of the 29th of January 2021, India has the fourth largest forex reserves, exceeding US$590 billion.[3]

Foreign exchange reserves are also essential to facilitate cross-border trade. According to OEC data, India was the 16th largest exporter in 2018, exporting a total value of goods of US$326 billion. 

The United States was India’s largest export partner.[4] When India exports goods, it collects foreign currencies if the overseas counterparty pays for goods in US dollars or another foreign currency or the counterparty exchanges foreign currency for rupees. 

Exporting is an excellent mechanism for acquiring foreign currencies. 

The problem with this is India is a net importer, meaning the country imports more than it exports. 

Therefore, India requires more foreign currency than it collects.

India isn’t just concerned with money leaving the country. If too much foreign capital flows into the country unchecked, it can lead to inflation.[5] 

India has been tackling high inflation rates for years. In 2020, India’s rate of inflation for 2020 was estimated to be 4.95%. [6]

Because of this complicated blend of circumstances, India has adopted a rigorous approach to regulating foreign exchange trading.

Forex trading regulations in India

As mentioned, foreign exchange trading is highly regulated and monitored for a number of critical economic reasons. 

Forex is regulated by the Reserve Bank of India (RBI) under the Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India.

The Act is defined as ‘An Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.’

Before the 1999 FEMA, there were a series of far more strict predecessors to this act. Foreign exchange controls were first adopted in 1939, while India was under British rule. 

As WWII broke out, the Defense of India Act 1939 was introduced, which essentially declared martial law.

The Act gave the Central Government power of controlling the use or disposal of, or dealings

in, coin, bullion, securities or foreign exchange, among many other things.[7]

In 1947, following the conclusion of WW2, India introduced the Foreign Exchange Regulation Act (FERA) of 1947. 

The act was initially intended to be temporary. Ten years later, the act became a permanent part of the law. 

Later, FERA, 1974 can into effect, bringing with it even harsher constraints. Violating India’s foreign exchange laws was considered a serious crime and gave the state powers to arrest citizens without warrants or evidence.[8]

Despite decades of liberalization of forex regulations in India, the country remains one of the most inhospitable places in the world to trade forex and transact in foreign currencies.

In collaboration with the RBI, the Securities and Exchange Board of India (SEBI) regulates the country’s capital markets sector, including forex futures, and exchange-traded options in a limited number of trading pairs.[9]

Is forex trading legal in India

Forex trading in India is legal but under very restrictive conditions. The RBI may authorize certain people and companies to carry out, deal in or transfer any foreign exchange or foreign security.

The only places to speculate on India’s financial markets while being confident that you’re not violating one of the country’s many laws related to foreign exchange controls is to trade with a regulated securities exchange.

Regulated exchanges offering forex derivatives are the National Stock Exchange of India, Bombay Stock Exchange and two others.[10]

In India, you can legally trade the following currency pairs as futures or options contracts:

  • EUR/INR
  • GBP/INR
  • JPY/INR
  • USD/INR
  • EUR/USD
  • GBP/USD
  • USD/JPY

Forex brokers in India

As mentioned, it is possible to trade forex futures and options in India. 

These products are often considered less competitive than what international brokers offer, such as spot-forex and CFDs. 

Moreover, global forex and CFD brokers provide dozens of forex trading pairs and hundreds of more instruments on their trading platforms.

Many international forex brokers, mainly offshore regulated companies, are willing to open accounts for Indian residents and nationals. 

Once you have the trading account open, you might face challenges remitting money overseas to the account of a forex broker. If your Indian bank recognizes you’re attempting to transfer money overseas to a forex broker, they might decline the transfer.

If you’re considering using a money remittance company like TransferWise, you might run into problems with this method too. 

According to international anti-money laundering (AML) rules, brokers can only allow clients to fund their account from their own accounts. 

If you’re using a money transfer service, the broker might consider it a transfer from a third-party and return the deposit.

If you’re based in India, make sure you understand the foreign exchange rules, which are far-reaching. Consider any potential obstacles or risks of repatriating your profits back to India.

A portion of the Sign up links to brokers websites are affiliate links. We may receive a commission with no charge to you. This enables us to keep creating helpful forex trading content for our readers for free.