There are two types of forex trading: spot forex and currency futures. Spot forex is the buying and selling of foreign currency pairs for immediate delivery.
Currency futures are contracts to buy or sell a specific amount of a currency at a set price on a set date in the future.
Is forex trading legal in India?
Forex trading is legal in India, but there are some restrictions. India is a member of the International Monetary Fund (IMF) and the World Bank. These two organizations regulate forex trading around the world. In order for Indian citizens to engage in forex trading, they must open an account with an Indian broker that is a member of the Securities and Exchange Board of India (SEBI).
The Reserve Bank of India (RBI) is the country’s central bank, and it regulates all financial institutions in India, including forex brokers. The RBI has set limits on the amount of leverage that a forex broker can offer its clients. The maximum leverage that a forex broker can offer is 50:1. This means that for every $1 you have in your account, you can trade up to $50 worth of currency pairs.
The RBI also requires that all Indian citizens who wish to engage in forex trading submit certain documents, including a copy of their passport and PAN card. Indian citizens who want to trade currency futures must also open an account with a SEBI-regulated broker.
1 The RBI’s stance on forex trading in India
The RBI’s stance on forex trading in India is that it is illegal. This is because forex trading in India involves exchanging one currency for another, and the RBI has strict regulations in place to prevent currency manipulation. However, there are a number of grey areas when it comes to forex trading in India, and it is possible to trade forex legally if you follow certain guidelines.
2 The guidelines for legal forex trading in India
If you want to engage in forex trading in India, you need to do so through a registered broker. You also need to ensure that your trading activity does not violate any RBI regulations. In addition, you should only trade with funds that you can afford to lose.
2 The SEBI’s stance on forex trading in India
The Securities and Exchange Board of India (SEBI) is the main regulatory body for securities and commodities markets in India. SEBI has not banned forex trading outright, but has taken a number of steps to discourage it.
In September 2018, SEBI issued a circular stating that “trading in foreign exchange by individuals is prohibited”.
The circular also said that “any person found contravening this prohibition shall be liable to penal action under the Foreign Exchange Management Act, 1999”. This was widely interpreted as a ban on retail forex trading by individuals.
However, SEBI’s stance on forex trading is not entirely clear. In December 2018, SEBI issued another circular that said that “a person resident in India may trade in foreign exchange derivatives on a recognized stock exchange in India provided he satisfies the following two conditions:
(i) he is a member of the stock exchange; and
(ii) the aggregate of all his transactions does not exceed USD 10,000 per calendar month”. This suggests that SEBI does not completely prohibit retail forex trading, but places restrictions on the amount that can be traded.
It is worth noting that SEBI’s stance on forex trading may change in the future. In March 2019, the Reserve Bank of India (RBI) announced plans to set up a working group to study the possibility of allowing retail investors to trade in foreign exchange. The working group is expected to submit its report within three months.
What is the penalty for forex trading in India?
Although forex trading is legal in India, there are some restrictions imposed by the Reserve Bank of India (RBI) that make it difficult for Indian citizens to participate in the global forex market. For example, RBI regulations limit the amount of money that Indian citizens can send abroad to $5,000 per year.
Similarly, forex trading in India is only allowed through licensed brokerages, and all transactions must go through designated banks.
As a result, many Indians choose to trade forex through online brokerages based outside of India.
However, it is important to note that forex trading carries a high level of risk and may not be suitable for all investors. Before deciding to trade forex, you should carefully consider your investment objectives, level of experience, and risk appetite.
If you do decide to trade forex, it is important to be aware of the potential penalties. Under Indian law, forex trading is considered a form of gambling and is therefore not subject to income tax.
However, if you make a profit from forex trading, you will be liable for capital gains tax at a rate of 20%.
Furthermore, if you are found to have violated RBI regulations, you could be subject to a number of penalties, including a fine and/or imprisonment.
What are the consequences of forex trading in India?
The consequences of forex trading in India can be quite severe. If you are caught trading forex, you could be liable for up to two years in prison and a fine of up to ₹1 million. In addition, your assets could be seized and your bank accounts could be frozen.
If you are found to have been involved in money laundering, you could be sentenced to up to 10 years in prison and a fine of up to ₹5 million.
1 Punishment for forex trading in India
Forex trading is illegal in India and can attract a prison sentence of up to 10 years. The Enforcement Directorate (ED) is investigating a case of alleged illegal forex trading to the tune of Rs 5,000 crore ($686 million) through 58 accounts in HDFC Bank.
The Reserve Bank of India had in September 2019 cautioned people against dealing in virtual currencies (VCs), including bitcoins, calling them risky.
There is a real and heightened risk of investment bubble of the type seen in Ponzi schemes, the RBI had said.
The government has also been cracking down on cryptocurrency exchanges in India. In April 2018, the ED had raided the premises of 10 exchanges across the country and froze their bank accounts.
While forex trading is not illegal per se in India, it is restricted to certain instruments and traded through authorised dealers. Only authorised dealers, banks and members of stock exchanges are allowed to trade in foreign exchange.
Punishment for illegal forex trading in India can range from a fine of Rs 1 lakh ($1,400) to imprisonment up to 10 years under the Foreign Exchange Management Act (FEMA).
2 Other consequences of forex trading in India
In addition to the potential for hefty fines and jail time, there are a number of other consequences of forex trading in India that individuals should be aware of.
First, engaging in forex trading in India could result in the loss of your Indian citizenship. This is because forex trading is considered to be an activity that is not “normal” or “ordinary” by the Reserve Bank of India (RBI).
As such, if the RBI finds out that you are engaging in forex trading, they could deem you to be “not resident” in India for tax purposes.
Second, even if you are not found to be “not resident” in India for tax purposes, engaging in forex trading still carries a number of tax implications.
For example, any profits that you earn from forex trading are considered to be taxable income. Furthermore, if you are found to have traded with foreign currency that was not declared to the RBI, you may be subject to penalties and/or fines.
Finally, it is important to note that the RBI has the right to freeze or seize any bank accounts that they believe are being used for illegal forex trading activities.
This means that if you are caught engaging in forex trading, not only could you face criminal charges, but also your bank accounts could be frozen and/or seized by the RBI.
How to forex trade in India
There are a few ways to forex trade in India. The first is through online brokerages that are not based in India. These brokerages can be found through online directories or by word of mouth.
The second way to forex trade in India is through overseas brokerages. These are based in countries like the US, UK, or Hong Kong. The third way to forex trade in India is through retail dealers. These are typically located in Mumbai or Delhi.
The first step in forex trading is to find a reputable broker. This can be done by searching online or by speaking to other traders. Once you have found a broker, you will need to open an account and deposit funds. Once your account is funded, you can begin trading currency pairs.
Reputable brokers to Trade with
Broker | Review & Broker Type | Min. Deposit | Leverage | Spreads | |
fpmarkets  | ASIC, CySEC | From $1, €10 | Up to 1:500* | From 0.0 pips | |
IC Markets  | AFSL, ASIC, CySEC, FSA | $200 | From 1:1 to 1:500 | From 0.0 pips | |
FXOpen  | ASIC, FCA | $1 | Up to 1:500* | Floating spread from 0 pips | |
AXI  | ASIC,FCA, DFSA, FSC | $1 | Up to 1:500 | From 0-0.4 pip | |
Exness  | FCA, CySEC, FSA, CBCS, FSC, FSCA | From $1 - $200 | From 1:100 - 1:2000 | From 0-1 pip | |
NordFx  | VFSC | $200 | Up to 1:1000 | Floating spread from 0.9 pips | |
Eightcap  | ASIC, VFSC | $100 | From 1:30 - 1:500* | From 0.0 pips | |
Vantage Markets  | CIMA, ASIC, FCA | $100 | Up to 1:500* | From 0.4 pips | |
Instaforex  | CySEC, FSC BVI, FSC | From $1 | From 1:1 - 1:1000 | From 0-7 pip | |
FBS  | CySEC, FSC, FSCA, ASIC | From $1, €10 | 1:3000 | From 1 pip |
When trading forex, it is important to remember that you are speculating on the future value of a currency pair.
As such, it is important to have a clear understanding of the factors that can affect currency values. These include economic indicators, political events, and natural disasters.
It is also important to use risk management when trading forex. This means setting stop-losses and taking profits at regular intervals. By doing this, you can limit your losses and maximize your gains.
If you are new to forex trading, it may be wise to start with a demo account before investing real money. This will allow you to get a feel for how the market works without risking any of your own capital.
Is mt4 legal in India?
Yes, all versions of MetaTrader function in India, including MetaTrader 4 and 5. Moreover, if you are concerned about the legality of the technology, you can rest certain that MetaTrader 4 is legal in India. It can be used to trade foreign exchange, equities, and commodities.
Is forex trading revenue taxable in India?
If a trader engages in forex trading as a business, the resulting income will be taxed as business income. Otherwise, it must be taxed as “income from other sources” at the individual tax rate. On FX transactions, GST is charged in three brackets.
Recommended Forex Trading Brokers in India
Are you looking for a reputable broker which whom you can trade with in India?
Broker | Review & Broker Type | Min. Deposit | Leverage | Spreads | |
fpmarkets | ASIC, CySEC | From $1, €10 | Up to 1:500* | From 0.0 pips | |
IC Markets | AFSL, ASIC, CySEC, FSA | $200 | From 1:1 to 1:500 | From 0.0 pips | |
FXOpen | ASIC, FCA | $1 | Up to 1:500* | Floating spread from 0 pips | |
AXI | ASIC,FCA, DFSA, FSC | $1 | Up to 1:500 | From 0-0.4 pip | |
Exness | FCA, CySEC, FSA, CBCS, FSC, FSCA | From $1 - $200 | From 1:100 - 1:2000 | From 0-1 pip | |
NordFx | VFSC | $200 | Up to 1:1000 | Floating spread from 0.9 pips | |
Eightcap | ASIC, VFSC | $100 | From 1:30 - 1:500* | From 0.0 pips | |
Vantage Markets | CIMA, ASIC, FCA | $100 | Up to 1:500* | From 0.4 pips | |
Instaforex | CySEC, FSC BVI, FSC | From $1 | From 1:1 - 1:1000 | From 0-7 pip | |
FBS | CySEC, FSC, FSCA, ASIC | From $1, €10 | 1:3000 | From 1 pip |
Alexandra is a professional writer with an extensive background in the financial markets. Alexandra started out in the financial industry in 2011 and trades forex, stocks, and cryptocurrencies.
Alexandra also writes technical and fundamental market analyses. Alexandra also tests forex brokers’ trading platforms and crypto exchanges and writes forex broker reviews.