Forex trading has become much more popular with retail traders over the last few years and has lead some countries into regulating the industry. In fact, forex is actually banned in over 20 countries completely, with many other countries highly regulating the industry. This begs the question, is forex trading actually legal in India?
In short, forex trading is legal in India providing that INR is the base currency and you trade currency pairs allowed by the RBI. You also need to trade with an SEBI registered forex broker to operate legally. If you trade with two foreign currencies, or with a broker that isn’t SEBI registered, you will be breaking the law in India and potentially face prosecution. Let’s go into a bit more detail…
Forex Trading In India – The Law
The regulations for forex trading in India are much stricter than the majority of countries. This greatly limits what Indian traders are allowed to do legally. The good news is, forex trading in Indian isn’t completely illegal. For a very long time, the only pairs you could trade in India legally were INR based currencies like INR/USD. However, in 2015 3 other currency pairs GBPUSD, USDJPY and EURUSD were made legal providing you traded through a registered exchange.
The exchanges you can trade are the NSE, BSE, and the MCX-SX. It’s important to know that a lot of brokers are not allowed to be used for Indian traders. The broker you trade forex with MUST be regulated and authorised by the SEBI. If your broker isn’t authorised by the SEBI, you will be breaking the law.
A forex trade with 2 foreign currencies made overseas is seen as illegal in India. Forex is entirely regulated by the SEBI (Securities and Exchange Board of India) and the Reserve Bank of India.
Why Is Forex Trading Banned In India?
Forex trading is banned in India, unless you’re trading a base currency of INR. This is actually done for a very good reason, as annoying as it may be for Indian traders. The Reserve Bank of India are the governing body behind this regulation when it comes to forex trading.
Let’s say you trade EURUSD, as an forex trader in India. You trade this pair with a broker based outside of India, IC Markets for example and you take a losing trade. This would force you to buy USD from the Reserve Bank of India. This, compounded over thousands of traders consistently losing, as most traders do, will cause the Bank to be in a deficit of US currency. They would then be forced to buy a large amount of USD, in exchange for selling INR at a cheaper spot price. This, over time, will devalue the INR and cause economic issues for the country.
Although this logic makes a huge amount of sense and I can see why the RBI issued this statement, many other countries around the world are able to make forex trading completely legal and mitigate any risks to currency valuations – so I’m unsure as to why this would be fundamentally different in India.
Choosing An Indian Forex Broker
When forex trading in India, you will sadly have less options in choosing a broker to trade with as you would in other countries. For instance, in the U.K, we can trade with pretty much whichever broker we want to trade with but if they are not FCA regulated, we forfeit a lot of security from our governing body.
In India, you need to be trading with a forex broker that is registered with the SEBI. SEBI is the Securities Exchange Board of India and they are very much involved with the regulations that come with forex trading. It’s unclear whether it’s actually illegal to trade with an unregistered broker or not. Some sources say it is completely illegal to trade with any broker besides SEBI registered brokers and some say it’s just not advised, but you won’t necessarily get in trouble. I would HIGHLY recommend trading with a SEBI registered broker to be safe as an Indian forex trader.
In short, when choosing a forex trading broker in India you will want to verify that they are SEBI authorised, by looking for their authorisation near the bottom of their website. There is a list you can check their numbers against on the SEBI website here, to ensure that the authorisation is still up to date.
ForexBrokers have a great list of the top brokers for Indian forex traders, that might be worth checking out. A lot of the usual names you’ll find on our top brokers list are here, like IC Markets for instance.
Is Prop Firm Trading Allowed In India?
There isn’t too much regulation currently around online prop firms trading within India. Physical prop firms in India are highly regulated but in terms of the online prop firms like FTMO – there is very little regulation that makes it different for traders in any other country.
For example, FTMO will accept traders from any country in the world – provided they are able to pass the trading criteria set out in the challenge. If you have a look at the majority of our top forex prop firms list, they will all also accept Indian forex traders.
The only difference, country to country will be how your income from your funded trading account is taxed. This will greatly differ depending on your jurisdiction, financial situation and location. I’d recommend doing your due diligence on this part, before taking part in any kind of prop firm funding.
It is down to the trader to ensure that they are operating within local law when it comes to forex trading.
Is India The Only Country Banning Forex?
In 2021, India is not the only country limiting forex traders in the way of regulation. There is currently around 20 countries around the world where forex trading isn’t legal and there are many regulations you need to be aware of. If you’re caught in India breaching the forex regulations, you will be held accountable to the FEMA act. Many forex trading platforms are banned in India, still. This also effects markets like Binary Options, as these are completely illegal to trade – for the best, in my opinion!
In Conclusion – Can You Legally Trade Forex In India?
In summary, you can legally trade forex in India providing you stick to the guidance of the RBI. You must trade with an INR base currency, with a broker that is authorised by the SEBI. Regulation is strict and you are much more limited in India when it comes to trading forex, than in many other countries but it’s still very much possible.
I’d highly recommend checking if your broker is authorised on the SEBI list, before attempting to trade forex in India as you will be breaking the law. Breaking the FEMA law can result in prosecution, so please use due diligence.
If you have any more questions please do let me know and I will strive to answer them in the comments down below.