Forex

Forex Trading in India – Details to Know

Forex Trading in India - Details to Know

Forex trading is a relatively new and very interesting investment option in India. Despite the fact that the authorities have imposed severe restrictions on this activity, speculation in the Forex market is legal in the country and is attracting an increasing number of people.

Before understanding the specifics of trading in the Indian foreign exchange market, it is necessary to consider a few essential facts about this exotic and very interesting country. It is the second-most populous one, with a population of 1.35 billion, home to nearly 17.5% of all people in the world.

Forex has become popular in India in the last decade, but in the beginning, it was characterized by a lot of scammers. Combined with the risky nature of Forex trading, this has prompted the authorities to impose various restrictions on Forex trading. Currently, Indian citizens are allowed to trade in the foreign exchange market but must comply with a wide range of rules and restrictions.

SEBI – Main Regulator of India

The Securities and Exchange Board of India is the organization that regulates the securities market in India and is one of the leading in the financial markets. SEBI was formed in 1992 and has been active since then.

The Indian Forex segment is developing rapidly, which is why brokers are striving to become SEBI license holders. Generally, brokers regulated by SEBI are considered the safest ones in the country. The activities of this regulator are primarily aimed at protecting the rights of traders. SEBI often acts on the side of the investor, preventing insider trading and other illegal activities, and protecting the interests of users. One of the main SEBI requirements for Forex brokers is the availability of an insurance fund to protect traders’ funds and absolutely transparent activities. Also, the regulator carefully checks all transactions with securities, is engaged in legislative activities and introduces new market practices.

The main responsibility of the SEBI regulator is to respond in a timely and effective manner to the needs of securities issuers, investors and market intermediaries. To ensure these functions, the regulator has a number of powers, in particular:

  • Approves by-laws of stock exchanges
  • Has the right to demand amendments to the bylaws of the stock exchange
  • Checks the bookkeeping of stock exchanges and financial intermediaries
  • Obliges companies to publish shares on stock exchanges
  • Charges fees from intermediaries to ensure the functions of the regulator
  • Issues licenses
  • Delegates authority
  • Renders judgments for violation of the provisions of the Companies Law

To carry out these powers, SEBI has organized special Committees.

Forex Legislation of India

The Indian government has imposed severe restrictions on how individuals can trade Forex. Generally speaking, buying and selling in the foreign exchange market is a legitimate activity as long as trades are only made in pairs that include the Indian rupee (INR). Even this type of trading is strictly regulated and only allowed through a licensed broker.

The main piece of legislation affecting the Forex market and all market participants in the country is the Foreign Exchange Management Act 1999 (FEMA). It was passed by the Indian Parliament and replaced the Foreign Exchange Regulation Act (FERA), a 1973 law that prohibited trading in the foreign exchange market. The new law was in line with the government’s liberalization policies and, among other things, facilitated foreign operations.

According to FEMA, Indian residents are not allowed to send funds overseas to foreign exchange brokers. Converting INR into other currencies for trading on the Forex market is prohibited. This means that Indian traders have only a few options when buying or selling currency pairs – they are allowed to trade currency derivatives and pairs that include the rupee plus several major currencies: US dollar, euro, pound sterling and Japanese yen.

Moreover, traders should make sure that they trade through Indian exchanges and with the help of licensed brokers. The exchanges offering Forex instruments are the National Stock Exchange of India, LLC (NSE), BSE (formerly Bombay Stock Exchange) and MCX-SX, which stands for Capital Stock Exchange. In general, retail traders in India can trade Forex Options (USD / INR Option Contracts) and Forex Futures – USD / INR, GBP / INR, EUR / INR and JPY / INR.

Traders are required to deposit on the exchange through an intermediary (such as a broker), and margin is used when offering currency derivatives. When it comes to futures, the lot size is 1000 per unit – there is an exception for the JPY / INR currency pair, which is 100,000 units. Futures cycles can be from 1 to 12 months. Of course, trading in pairs without INR is illegal under applicable law.

All of this suggests that India’s financial markets are not fully open. While the foreign exchange market is generally a decentralized global market that anyone can freely access, this is not the case in India. However, the country is expected to continue its liberalization policy, which is great news for all traders. It should also be noted that many traders choose to work with unregulated offshore brokers – however, this can come with certain risks.

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