Is Forex Trading Legal In India?
National, April 2021: Currency trading has always been a controversial debate in India. Traders seem to have a lot of confusion concerning the legality of forex trading in India. In this piece, we discuss whether it is legal to trade forex in India. We will also cover the legal implications a trader could face if found in breach of conduct stipulated by the Reserve Bank of India (RBI).
Forex Trading In India – Legal or Illegal?
Forex trading in India is legal. However, the scope of currency trading in the country is limited due to strict regulatory restrictions. Traders are allowed to trade currencies with regulated brokers only. Except for three cross currency pairs, traders cannot trade any currency pair that does not involve the Indian Rupee.
Currency Pairs That Are Allowed To Trade In India
Given below is a list of currency pairs that you can trade as currency derivatives in India.
USDINR
JPYINR
EURINR
GBPINR
EURUSD
USDJPY
GBPUSD
Who regulates forex trading in India?
The Reserve Bank of India (RB), and the Securities Exchange Board of India (SEBI) regulate forex trading in India. The RBI is responsible to manage foreign exchanges and brokers under FEMA Act – 1999. According to the FEMA Act, traders need to sign up with SEBI-regulated brokers to pursue forex trading in the country.
Legal Implications On Illegal Forex Trading In India?
Forex trading in India with a broker other than the regulated ones is a non-bailable offense in India. Anyone who is found guilty of trading currencies illegally in India can face serious legal consequences, including imprisonment and financial surcharge.
Why currency pairs that don’t involve the Indian rupee are illegal to trade in India?
Economists hold multiple views concerning the limitation of forex trading in India. However, according to brokerage research firm ForexToStocks “the country doesn’t want to compromise on its forex reserves.”
For example, suppose, a trader opens a position in a non-Indian pair, such as EUR/USD. If he loses, he would buy U.S. Dollars from the RBI, which results in an outflow of forex reserves, leading to a current account deficit.
On the other hand, it is also believed that since forex trading carries increased risk exposure, the Indian government want’s to protect its citizens from severe potential losses.
Forex Reserves of India
While India keeps forex reserves on priority, it still witnessed a significant decline of $2.89 billion in the forex reserves in the week ended on March 26, 2021. According to an estimate, Indian forex reserves were standing at $590.185 billion as of January 29, 2021.
Final Words
Despite strict regulatory restrictions in India, forex trading has become increasingly popular in the country over the past few years. Earlier than FEMA Act 1999, Indian citizens were even not allowed to hold foreign currencies as per the guidelines of the FERA Act 1973.
