Is Forex Trading Legal In India? Everything You Should Know

Is forex trading legal in India

Forex trading or foreign currency exchange is a global decentralzed trading market that provides the opportunity of buying and selling of all the currencies worldwide of different economies. It can also be considered as the over-the-counter (OTC) market for trading in currencies.

Is forex trading legal in India

People can check the foreign exchange rates for every currency and can make a decision of either purchasing or selling the currencies based on their opinion or the prediction. 

Forex trading is one of the most popular of online trading, it has an average daily turnover of over $7.5 trillion (2022).

What is forex trading?

Is Forex Trading Legal In India? 

As per the Indian laws, forex trading is only permitted when it is done through a registered Indian trading platform or broker. In India the forex market is regulated by the RBI (Reserve Bank of India) and SEBI (Securities & Exchange Board of India) is the regulatory authority for the securities market in India, which includes overseeing certain aspects of Forex trading.

Forex trading in India

According to the Foreign Exchange Management Act 1999, In terms of sub-section 4, of Section (6) of the act, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India. Foreign Exchange Management Act governs forex trading in India and it is regulated by RBI rules and regulations. 

According to the Indian laws an individual is not allowed to trade in forex on their own, without any assistance from any registered brokers. 

Note: Also, visit the article 5 Most Trusted RBI Approved Forex Brokers In India. 

How SEBI Regulates Forex Trading In India?

SEBI, the Securities and Exchange Board of India, oversees the forex trading market in India. It is considered as the chief regulator for capital markets in India, ensures that firms adhere to the stipulations of the Foreign Exchange Management Act (FEMA) of 1999.

Forex trading

SEBI, is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto. Firstly it was established as a non-statutory body in 1998, however later on it was given statutory powers with the SEBI Act 1992.

Its main functions includes: 

  1. Registration of Brokers and Agents.
  2. Notifications of Rules and Regulations.
  3. Levying of Fees.
  4. Regulator of Investment Schemes.
  5. Prohibits Unfair Trade Practices.

Some rules & regulations set by SEBI for forex trading 

  • The RBI criteria –  RBI issues time to time circulars to regulate the forex market in India. The circulars contain specific details about the permissible currency pairs, the maximum leverage, the margin requirements, and the reporting obligations and regulations for forex traders.

Rules for Forex trading in India

  • FEMA Act 1999 – This act supervises and prohibits anyone from dealing in foreign exchange or securities except through an authorized broker or dealer. FEMA is also responsible for restricting the amount and purpose of foreign exchange transactions by residents and non-residents.
  • SEBI Rules 2019 – The rules and regulations set by SEBI govern the registration, eligibility, and investment limits. It also looks into the compliance requirements and registration for foreign portfolio investors (FPIs). FPIs invest in Indian securities on behalf of their overseas clients.

Authorized and legal forex trading platforms in India 

NSE (National Stock Exchange)NSE offers currency trading in USD/INR,
EUR/INR, GBP/INR, and JPY/INR pairs. 
BSE (Bombay Stock Exchange)BSE also provides currency trading similar
to NSE.
MCX-SX (Multi Commodity
Stock Exchange)
MCX-SX offers trading in USD/INR, EUR/INR,
GBP/INR, and JPY/INR currency pairs.
Authorized Brokers There are authorized forex brokers in India
who provide trading in forex markets.
The requirement is that these brokers
should be registered with the (SEBI) India,
as well as recognized by the RBI. 
NSE IFSC Another addition is NSE IFSC which is
based in Gujarat International Finance
Tec-City (GIFT City) and allows trading
in additional currency pairs.
Authorized trading platforms and currency pairs for Forex trading in India

Forex Trading Strategies 

Tarde range – Traders can use different time lengths for trade like short-term, medium-term, and long-term for analyzing the price of currencies.

Price action trading – The most used strategy for forex trading. It is beneficial more in a wide range of market conditions and is completely reliant on the changing dynamics of price action in currency trading.

Range trading – In this strategy, the trade is made in a certain range of currency values, and the trader must identify all the pricing conditions in which to trade, where the price levels are normally determined by currency demand and supply.

Carry trade – This strategy involves borrowing a particular currency at a lower rate and simultaneously investing in a currency that provides a high rate. This can provide for a positive carry of trade. This strategy is directly based upon the dynamic change rate of the particular currencies.

Advantages & Disadvantages of Forex Trading 

Below are some advantages and disadvantages of forex trading that are important to know. 

Advantages  Disadvantages 
The forex market allows trading in a large
amount of currency with just a small
amount of capital. Thus provides
opportunities of getting high leverages. 
Forex market is highly volatile and
thus the exchange rates of currency
pairs may fluctuate.  
Forex trading is one of the most liquid
markets in the world, thus allowing one to
invest and redeem currencies at any time. 
High leverage can also lead to losses if
the trading price is not in traders favor. 
Forex markets have lower transaction
costs as compared to other markets.
Predicting price can be a difficult task
as it is influenced by factors like
economic and political conditions
of that respective country. 
It helps to generate quick returns as
exchange rates of currency pairs
change very often. 
Fewer return rates as it depends on the
difference of the interest rate of counties
issuing the currencies. 
Advantages & Disadvantages of Forex Trading

Summing Up

Forex trading in India is legal but with some restrictions, it is only regulated by those platforms that are being authorized by SEBI and RBI. There are only a few platforms that are permitted with the license to trade in foreign currencies.

Forex trading in India

For any platform or broker that wishes to allow forex trade on their platform, they need to be an RBI or SEBI – registered platform. Forex trade market provides an unmatchable range of benefits and perks but also involves some risks associated with it.  

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Published By: Aashita Singh
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