Forex (FX), commonly known as foreign exchange or currency trading, is a decentralised worldwide market where all currencies from various economies are traded—sold and purchased. The FX market is the globe’s biggest and most liquid financial market. However, most people remain confused about the legality of it in India. Let’s find out is forex trading legal in India or not in this article.
Is Forex Trading Legal in India?
You can buy or sell a currency according to your opinion of its value or simply by predicting where it will go in the future, just like stocks.
It is permissible to trade Forex on Indian exchanges such as the BSE, NSE, and MCX. However, you can hit it big profit or lose it all in the blink of an eye.
If you believe the value of a currency will rise or fall, you can purchase or sell it accordingly. Locating a buyer when you’re selling and vice versa is significantly faster in this market as this is much more volatile than in any other market.
What is Forex Trading ?
Currency trading, often known as foreign exchange or Forex, is the act of buying and selling currencies only for the purpose of profit.
‘Speculative Forex trading’ is another term for it. To summarise, the terms “currency trading” and “forex” are interchangeable in a broad sense, but the former is done with the goal of profiting from the transaction.
When purchasing and selling one currency for another takes place as part of the same transaction and technically at the same time, this is known as forex trading.
Consider the case where you want to profit from the rising value of the dollar. If the dollar is trading at INR 72 and you believe it will rise in value to INR 76 in a few months.
You may take a long position by purchasing a USDINR contract on the market. You get a profit of Rs.4 per dollar if the price rises to INR 76. So you can make INR 4000 on a single trade of 1000$.
How to identify Currency ?
The two currencies participating in the transaction constitute a currency pair, with three letters denoting each one – the first two letters indicating the country’s name, and the third letter indicating the currency’s name.
INR is for Indian Rupee, USD stands for United States Dollar, ECD stands for Eastern Caribbean Dollar, AUD stands for Australian Dollar, JPY stands for Japanese Yen, and so on.
Major Forex Markets
Central banks, commercial banks, brokerage, and other market players participate in the foreign exchange market, which is decentralised, highly liquid, and global.
On a global scale, the foreign exchange departments of the main banks are connected on a 24-hour basis. London, Amsterdam, Frankfurt, Milan, Paris, New York, Toronto, Bahrain, Tokyo, Hong Kong, and Singapore are the leading foreign exchange trade centres.
The central banks (in India, the Reserve Bank of India) observe market developments and are authorized to interfere if necessary, in accordance with government policies.
Exchange Traded Currency Derivatives
A financial contract that is listed and traded on a regulated market is known as an exchange-traded derivative. To put it another way, these are the forms of derivatives that are traded in a regulated environment. The value of an exchange-traded currency derivative is derived from an associated asset that is traded on a stock market.
It is also protected from default by the use of a clearinghouse, making it a secure channel. ETDs different from over-the-counter (OTC) derivatives in terms of their highly standardised nature, increased liquidity, and capability to be exchanged in the secondary market due to their existence on a trading exchange.
Use of ETDs
Futures and options contracts are examples of ETDs. For example, a currency futures contract in the form of Exchange Traded Currency Derivatives (ETDs) can be used to exchange one currency for another at a future date at a price determined on the contract’s issue date.
These derivative contracts are utilised in India to hedge against higher-value currencies including the dollar, euro, pound, and yen. These contracts are mostly utilised by companies with large exposure to imports or exports to hedge against currency fluctuations.
Laws About Forex Trading
It is a well-established fact that no Indian national can engage in forex trading inside the Indian Territory using any electronic and digital forex trading facility under any conditions, as directed by SEBI and controlled by RBI in order to reduce the risk involved.
The RBI issued a circular in 2013 prohibiting forex trading using electronic or online trading venues.
Forex trading, on the other hand, is considered lawful when done through designated foreign exchange trading facilities when the base currency is INR (Indian Rupees).
Basically, the Indian government has restricted trading to only currency pairs that are measured against the Indian rupee (Indian Rupee).
Designated Foreign Exchange Trading Facilities
As an Indian citizen, as long as you trade via a specific Indian stockbroker that gives you accessibility to Indian exchanges including the NSE, BSE, MCX, and also gives you exposure to currency derivatives, your trades are completely legal.
EURINR, GBPINR, JPYINR, and USDINR were previously the only traded instruments. The Reserve Bank of India, nevertheless, permitted exchanges to sell cross-currency futures contracts and exchange-traded currency options in three more currency pairings, including EUR-USD, GBP-USD, and USD-JPY, starting on December 10, 2015.
Punishment for illegal trading
When we think about is forex trading legal in India, we always want to know the punishment for illegal trading.
It should be highlighted at this point that forex trading executed illegally in India can result in jail or a punishment under the Foreign Exchange Management Act (FEMA), 1999 or FEMA Act.
Nevertheless, it is worth noting that NRIs are not prohibited from engaging in foreign exchange trading in India.
Forex Trading Broker
Brokers are companies that give traders access to a worldwide marketplace where they may purchase and sell foreign currency.
The transactions that take place in this market are usually between two distinct currencies, implying that forex traders either purchase or sell the pair they want to exchange.
Professional names for Forex Traders include retail forex brokers and currency trading brokers. Nevertheless, the majority of forex broker businesses deal in a relatively small part of the entire foreign exchange market volume.4
whilst retail currency traders utilise these brokerages to gain margin access to the 24-hour currency market for the intention of making risky forecasts.
How Forex trading Works?
Unlike stocks and commodities, forex trading takes place between two persons in a direct way, specifically in an over-the-counter (OTC) market.
The stated OTC market is separated into three categories of currency markets: spot, forward, and futures. Since forex trading includes selling one currency to purchase another, it is priced in pairs.
Simply said, the price of a forex pair is the value of one unit of the “base” currency in relation to the “quote” currency.
Every currency in the pair is represented by a three-letter code, consisting of two characters for the country and one for the currency.
India’s Currency Trading Approaches
After undertsanding is forex trading legal in India, Now let’s talk about trading techniques of it. Losing money is simpler than making it, considering its liquidity in regards to daily trading volume. The below are among the most common approaches and ideas which you can use to trade in Forex market:
The price action technique is the most widely used Forex trading strategy. It is generally beneficial in all sorts of market situations and is totally dependent on the bulls or bears of price movements in currency trading.
Traders using this technique must first determine the direction of the currency price movement (perhaps upward or downward) before deciding on an entry point. Moving averages, stochastics, relative strength indicators, and other online tools are also there to help traders with their research.
This technique involves trading against the current trend in the hopes of generating minor profit, and it is based on the assumption that the trend will reverse.
The transaction is done in a specified range of currency prices in a range trading strategy, and they must identify the favourable pricing circumstances in which they may trade, where the price levels are generally based on currency demand and supply.
In this form of trading, a trader enters the market when it is breaking out of a prior trading range, also known as a breakout.
Most experienced veteran traders practice position trading, which entails studying the charts at the conclusion of the day. To perfect this technique, one must have a powerful hold of the market’s basics.
The interest rate gap between the two nations whose currencies are being exchanged is the core of the carry trade approach. This includes selling a low-interest-rate currency and purchasing a higher-interest-rate currency, and is thus regarded as a very profitable strategy if done properly.
Eligibility for Forex Trading
After knowing legalities regarding is forex trading legal in India, Let’s check out the eligibility.
The futures market is open to every Indian resident on the country’s territory, as well as companies such as banks and other financial organisations.
Foreign Institutional Investors (FIIs) and Non-Resident Indians (NRIs) are, nevertheless, barred from trading in currency futures.
Indian Forex Trading Overview
The foreign exchange market in India began in 1978, when the Reserve Bank of India (RBI) allowed banks permission to conduct currency trading.
The RBI has well-structured and controlled the Indian foreign exchange market as it now exists. Such transactions may only be conducted by RBI-authorized dealers.
In India, there are two types of foreign currency markets: spot and forward. In the Indian territory, the forward market is open for a maximum of six months.
The forward market’s maturity profile has widened in recent years, thanks largely to RBI measures.
Forex Market Timing
The open and closing sessions of the New York, Sydney, Asia, and European forex markets are linked. So, now you know what the different sessions are and why trading during high liquidity periods is important.
You now have a better understanding of the Forex market clock, which includes the opening and closing hours for each day of the week.
Traders typically face a significant difficulty once the market opens to begin the week, and because prices fluctuate across the day, traders must remain alert at this period.
Some inexperienced traders may find the market’s precise timings difficult to grasp at first, but after a while, this will become second nature.
Now you know is forex trading legal in India or not, However, forex trading is quite complex in nature. If you are new & inexperienced we advise you to take proper knowledge of it before starting trading in this market.
This is all from our side regarding Is Forex Trading Legal in India. Let us know your views in the comment section.
Other Interesting blogs related to Is Forex Trading Legal in India.
Forex Market in India
Cross Currency Trading in India
Punishment for forex trading in India
Forex trading executed illegally in India can result in jail or a punishment under the Foreign Exchange Management Act (FEMA), 1999 or FEMA Act. Nevertheless, it is worth noting that NRIs are not prohibited from engaging in foreign exchange trading in India.
Legal Forex trading brokers in India
IG, Saxo Bank, FOREX(dot)com etc. are legal Forex trading brokers in India.
Punishment for Forex Trading in India Hindi
भारत में अवैध रूप से निष्पादित विदेशी मुद्रा व्यापार के परिणामस्वरूप विदेशी मुद्रा प्रबंधन अधिनियम (फेमा), 1999 या फेमा अधिनियम के तहत जेल या सजा हो सकती है। फिर भी, यह ध्यान देने योग्य है कि अनिवासी भारतीयों को भारत में विदेशी मुद्रा व्यापार में शामिल होने से प्रतिबंधित नहीं किया गया है।
Is OctaFX legal in India
According to legislation, an Indian person can only trade on SEBI and RBI-approved broker facilities and can only trade in INR pairings such as USDINR, JPYINR, and EURINR etc. As a result, trading on Octafx is prohibited.
Minimum amount required for forex trading in India?
The Forex trading account’s Minimum amount varies from INR 10,000 to INR 200,000.
Punishment for Forex Trading in India
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