Forex and CFD trading is very popular in India although, like many other countries, the legality of the market is quite vague. Even today, many are confused about whether Forex trading is legal or illegal in India. According to Indian law, a Forex trade that involves a trade of two foreign currencies is indeed illegal, meaning Forex trading in India is legal only when the base currency is the Indian Rupee. Yet, there is a large number of offshore online stock brokers, offering online trading services to Indian traders and there are plenty of speculations that the Indian authorities will remove all restrictions in the near future.
Here’s where regulation comes in; Indian traders can only trade with SEBI approved Forex brokers. SEBI is the Securities and Exchange Board of India which was established in 1992 with a primary role in regulating the securities and capital markets in India.
If you are in India and want to trade in a safe trading environment, we would recommend using a SEBI registered broker. In this article, we will provide all the essential information about the forex trading legal status in India and include the top three stock brokers in India as of 2020.
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What is a SEBI Regulated Broker?
Forex trading in India is considered as a “non-bailable” offense, however, you will be able to find many offshore Forex brokers offering trading services. The current status in India appears to be temporary and although there is no effective regulatory body allowing Indian or offshore companies to get a license to operate in India, Indian traders can still open a trading account with an offshore broker.
One thing is certain, whether the broker is offshore or domestic, it has to fulfill the rules and requirements of the Securities and Exchange Board of India (SEBI). Here are some of the main roles of SEBI:
- SEBI is responsible to protect investor interests and making sure their investments are safe
- Reducing financial fraud and manipulation, with a careful balance of self-regulation and financial requirements
- The development of a code of conduct for financial intermediaries
- Regulating the Indian securities market.
Best SEBI Regulated Brokers in 2020
Finding a broker that allows Indian investors to open an account is not an easy task. Yet, there are some top offshore online brokers that Indian investors can get access to. With that said, below you will find our top-rated SEBI brokers as of 2020.
1. eToro - Best Trading Platform for Social Trading
eToro is one of the most well-known brokers in the world, regulated by the Financial Conduct Authority (FCA) in the United Kingdom, the Cyprus Securities And Exchange Commission (CySEC) in Cyprus, and the Australian Securities and Investments Commission (ASIC) in Australia. The broker states on its website that it accepts clients from more than 60 countries worldwide including India.
eToro offers a user-friendly social trading platform where traders can connect with each other and share trading ideas. Moreover, the broker has developed the CopyTrading feature that enables you to automatically copy traders of any member in the community. eToro allows you to trade on currency pairs, stocks, cryptocurrencies, indices, commodities, and ETFs (including the iShares MSCI India ETF).
- Regulated by FCA, CySEC, and ASIC
- eToro is the largest and most effective social trading platform in the market
- Offers the CopyTrading feature
- Limited charting package
- eToro charges an inactivity fee
2. CryptoRocket - Best Crypto and Forex Trading Platform
CryptoRocket is a relatively new broker offering access to the forex, CFD and cryptocurrency markets. The platform is ideal for Indian investors as it is anonymous and does not require proof of ID or proof of address documents upon creating a trading account. This innovative broker offers a true STP execution model, and therefore, users can trade cryptocurrencies, commodities, stocks and forex with deep liquidity providers which can be traded through the popular MetaTrader4. As a result of being an STP broker, traders can get tight spreads and do not have to worry about any conflict of interest between the broker and the client.
But perhaps the greatest advantage of trading with CryptoRocket is the ability to deposit and withdraw funds with bitcoin. Furthermore, the broker uses the bitcoin cold storage to protect client funds and the lightning-fast deposit method that has no additional fees.
- Accepts deposit and withdrawals with bitcoin
- CryptoRocket is a true Straight Through Processing (STP) broker
- An extensive range of crypto assets
- Not regulated
- Limited range of markets
3. Interactive Brokers - Well Established Broker in India
Interactive Brokers is the most established forex and CFD broker to legally operate in India. The broker has a local branch in Time Square Building, Andheri – Kurla Rd, Gamdevi, Marol, Andheri East, Mumbai, Maharashtra 400059, India, and is registered and approved by SEBI.
Opening an account with Interactive brokers is quite straight forward but you should note that the minimum amount required to open a trading account with Interactive Brokers is $500 (around 37,800 INR). This trading account enables Indian investors to trade on the National Stock Exchange of India (NSE) and/or International Products (oversees). Interactive Brokers offers a selection of more than 90 worldwide markets through the Trading Oversees account that includes stocks, ETF’s currency pairs, bonds, etc.
- Interactive Brokers is registered and approved by the Securities and Exchange Board of India (SEBI)
- A wide selection of markets and products
- Allows users to integrate with NinjaTrader, APIs, and other types of automated trading tools
- High minimum deposit requirement
- High margin requirements
What Should You Look for in a SEBI Regulated Broker?
The choice of your broker defines your trading activity and the trading tools you can use. The broker, in fact, links you to the market and allows you to get market execution. But while trading with stock brokers that offer a trading platform and market execution will require you to get information on external sources, some stock brokers provide the whole package, making trading an easier task. Here are some crucial factors to consider before you choose an online broker:
Regulation and Security
Forex and CFD brokers are not required to get authorized by SEBI in order to accept residents of India as clients. And indeed, the status of forex trading is confusing for Indian investors who want to enter the lucrative online trading world. Nevertheless, you can have the option to trade with an offshore well-established broker that allows you to get access to forex and CFDs such as eToro. It’s important that you choose a broker that holds licenses from top-tier regulators in other regions of the world or has advanced security features to keep your funds in a safe place. Otherwise, if you insist on trading with a SEBI registered broker, you’ll have yo consider Interactive Brokers.
In terms of security features, you’ll have to find a broker that takes security threats and data protection seriously. eToro, for example, offers the Multi-Factor Authentication which is known as a sophisticated authentication mechanism, and SSL encryption for securing personal data. CryptoRocket provides advanced security tools such as the Bitcoin Cold Storage, the 2FA (two-factor authentication), tier-one processing, and the human intelligent withdrawal execution.
Local Payment Method
The Foreign Exchange Management Act (FEMA) restricts the people of India to send or receive Indian Ruppe (INR) to overseas countries for the purpose of currency conversions or investments. Consequently, if you would like to trade with an offshore broker, you’ll have to find a broker that supports local payment for India (eToro and Interactive Brokers) or accepts deposits and withdrawals with bitcoin (like CryptoRocket).
Spreads and Fees
Forex brokers do not charge fixed trading commissions but instead, they make money through the buy and sell spread. There are two types of spread: fixed and variable. While fixed spreads remain unchanged in all market circumstances, variable spreads widen and tighten according to market conditions (liquidity, volatility, etc). It’s advisable that you choose one type over the other based on your trading style and the market hours you plan to be active on the market. If you are a day trader, you might prefer variable (floating) spreads but for those who execute a small number of trades in a week, fixed spreads can do the work for you.
Minimum Deposit Requirement
Each account type comes with a different deposit requirement. As a rule of thumb, it’s advisable to start small and grow your account once you feel comfortable with the broker, the trading platform, and the trading conditions. The majority of forex brokers have small deposit requirements that range between $10-$1,000 and a leverage ratio that varies depending on the region (the regulator), the account type (retail or professional), and the tradable asset. While Interactive Brokers, one of our recommended SEBI registered brokers, requires an initial deposit requirement of $500, eToro has a minimum deposit requirement of $200 and CryptoRocket allows users to open a trading account with $50.
Social Trading Platform
Whether you are a newbie or an experienced trader, you may find social trading a very attractive trading tool. Social trading simply allows you to find the top-performing traders on the broker’s network, get ideas, find posts, charts, and market-news, and copy the buy and sell strategies of other traders. The bottom line, it is a different way of trading compared to the traditional individualistic mode of trading.
eToro is considered by many as the world’s leading social trading platform due to the high number of users (around 4.5 million) and the ease of use of its trading platform. Furthermore, eToro is the pioneer of the CopyTrading concept that enables you to copy trades of other successful traders.
Indian Forex brokers, whether domestic or foreign, are governed by SEBI but the Indian regulator is not yet issuing licenses for online stock brokers that operate through branch offices in India. Looking forward, it seems that the Indian financial authorities are giving in to the demand from forex traders and new legislations are expected to be launched to legalize online trading in India.
Meanwhile, Indian investors can trade through established stock brokers such as eToro, AvaTrade, and CryptoRocket.
Is Forex Trading Legal in India?
Since 2008, forex trading in India was legal through the currency derivatives market, which was done in one of the main exchanges in India: the National Stock Exchange (NSE), MCX-SX, and the United Stock Exchange (USE). At first, the only available currency pair to trade on was INR/USD, however, withing time GBP, EUR, and JPY were added to the list and new currency pairs were no longer restricted. At the time of writing, trading non-Indian Rupee (INR) Forex pairs is illegal in India under the FEMA act.
What is the Securities and Exchange Board of India (SEBI)?
SEBI, which stands for the Securities and Exchange Board of India, is the financial regulatory body in India that was established in 1992 as the main regulator of financial markets in India and stock exchanges in India. Among its wide responsibilities, SEBI regulates forex brokerage firms in India, whether domestic or offshore.
Why should you trade with a regulated broker in India?
The current situation about forex trading in India is quite confusing and unclear. Regardless, it's advisable that you start trading with a SEBI registered broker, but also with a broker that is highly regulated by top-tier regulators (such as FCA, ASIC, AND CySEC) in other regions of the world. That will allow you to get the necessary funds protection and remain safe and secure in case of a dispute or insolvency.
How do I know if a company is SEBI registered?
First, you will have to find the registration number of the broker. Once you enter a broker's homepage, you will be able to find the registration number on the bottom of the page (for example, Interactive Broker registration number - INZ000217730). Then, visit the SEBI financial register and insert the registration number to confirm that the broker is authorized in India.