October 26, 2021

Is foreign exchange legal in India

Forex_market

Introduction

Forex is basically a trading of one currency for other.Central Banks, Banks, corporation, Retail traders etc treads in foreign exchange. High liquidity, low barrier to entry, Better risk management, trade anytime you want, low transaction cost etc are advantages of foreign exchange trading. In spite of so many advantages, this market is full of risk due to which only 90% of the retail traders’ losses their money in this trade. Generally, people thinks it is a get rich quick scheme because this is the most liquid market. Hence it requires headwork and proper conscience.L et discuss, Forex trading in India is legal or not because with globalization, the movement of funds between two or more country has become quite common.

Liberalized Remittance Scheme

This scheme was introduced in February 2004, under this scheme RBI has announced that a resident can remit up to USD 250000 for capital and up to account transaction.  A resident Indian can be eligible to remit under this scheme. Corporate, partnership, firm HUF, trust etc are not under this available scheme. The opening of foreign currency account abroad, purchase of property abroad, investment making in abroad acquisition and holding the share of both listed or unlisted overseas companies, Extending loan to some resident Indian with a bank is a kind of capital transaction are permissible under this transaction.

Is foreign exchange legal in India

RBI restriction for Indian over Foreign exchange trading

It is subjected to the rule of the foreign exchange management Act (FEMA). Till 2013 nobody could send more than 75000USD to abroad in any financial year. In 2014 RBI increases the limit from USD 75000to USD 1,250000.But 2015 onwards, it increased up to 2,50,000. Instead of that if someone wants to trade in Euro, Dollar as they are more matured which give good benefits. So there is good news for them who want legally trade in foreign exchange, according to RBI. In Dec, 2015 RBI has permitted the forex trading in India only with a reputed broker in between. So from the beginning, RBI was strict in supplying money outside India because it was affecting foreign reserve of India. So from now, we know that we can do foreign exchange trade in India with our reputed broker. But supply of money outside India is not permissible through foreign exchange broker.

Conclusion

Hence foreign trading is not perfectly legal in India to trade anything but the exchange would be Indian (NSE, BSE, MCX-SC) which offers forex instruments currently USD INR, GBP INR, JPY INR, EUR INR. It is Illegal because RBI restricted to trade overseas on marginal trading segment. In India one is only allowed to trade through broker who are registered with the authorized exchanges. India is not only the country who has restricted the forex. Main reason behind restriction is that trader’s loss may result in the flow of foreign exchange, which will be responsible for the decrease in domestic currency. Due to which there will b increase in the current deficit.