How to do forex trading from India?

Beginner Questions
1

Hi guys,

I am in India and as you may know, forex trading is not permitted in India… If anyone knows could you please let me know if using the below method is possible to trade forex from India -

1} When we are abroad (outside India,where forex trading is allowed), say as a tourist or some business related work - open a bank account there. (call it bank account A)

2} Ask a relative who is abroad to transfer money to that bank account i.e - bank account A

3} Open a Forex trading account in that country where one opened the bank account.

4} Send fund to the forex trading account from that bank account A which is abroad and in which money was deposited by relative using their money earned abroad.

5} Trade online from India using that forex account.

6} When you make profit, send the money (same amount as was given by the relative) to your relative so as to give back his/her money.

7} Take the remaining profit from the trading account and keep it in the foreign bank itself and don’t send it to India.

8} Pay tax on forex income in that country itself.

9} When filing tax returns in India, include this forex income in the filing (as money earned abroad is taxable for Indian residents) and indicate it as other business income that has already been taxed in that country where it was earned thereby using the double taxation avoidance agreement to ensure you don’t have to pay tax in India

8} When you go to that country - use that forex money for higher studies etc.

Is the above method ok? Since under the FEMA (India’s Foreign Exchange Management Act) rules, we cannot send/convert Indian rupees to do anything related to leverage - which we are not doing in the above method as we are depositing money to trade using relative’s money - And we are not sending the money to India from the forex profits.

So neither are we remitting Indian Rupees abroad for forex trading nor are we collecting forex profits to India. We are just trading using foreign earned money.

Is there any rule that does not permit the usage of Internet IP address in India for forex trading ?

Thank you
element

2

You’re actually asking a [B]very[/B] complicated legalistic question, here, which probably only a [U]specialist lawyer in India[/U] is going to be able to answer confidently. In your position, I would give no credence at all to opinions from other people.

Trading forums are full of discussions about the legality of forex trading in India, in which the range of opinions expressed varies from the sublime to the ridiculous. My advice to you would be to be very careful indeed by whom you choose to be guided.

My own guess, based just on my experience of international forex trading, is that the scheme you outline above, whether legal in India or not (and that’s not something that I, [I]or perhaps anyone else here[/I], is qualified to hold any opinion about), would probably be breaching (a) the terms of service of the bank you use, and/or (b) the overseas country’s banking regulations, and/or © the terms of service of the broker you use.

Further, my own impression (for what it’s worth, and that may be nothing at all since I’m neither a lawyer nor in India!) is that in India, you can legally trade inside the country only various currency pairs against the Indian Rupee (such as USD/INR), but can trade offshore almost anything [I][U]other[/U][/I] than forex, without margin, with no or very few legal obstacles. My guess, therefore, is that forex may perhaps not be the trading vehicle you seek.

Edited to add: there are plenty of others available (including perhaps even currency CFD’s?).

3

Hi Lexys,

Thank you for the detailed opinion you have given.

Could you please provide a possible example for points a, b and c mentioned above ?

To clarify, I request you feel free to only quote a possible example that might come to your mind rather than giving an actual rule/regulation

4

I’m not sure I know enough about it to be able to do that helpfully.

The kind of situations/problems I was thinking of are the possible complications that can (and, these days, might be rather likely to) arise if you try to use a relative to help you out with banking and/or trading in another country.

Given the care of governments and institutions of all kind over money-laundering and terrorism-funding, these days, compliance is both hugely significant and frequently changing, I think. The days of easily being able to open and use banking and brokerage accounts easily and without proofs of identity, residence, and so on, are over.

Both banks and brokerages aren’t going to be too happy about any kind of situation involving someone “using a local relative” to try to circumvent any regulations to achieve something they can’t achieve themselves, I think.

I have no expertise in this subject at all. I was posting mostly by way of “friendly warning” to you that others potentially replying may also not have very much. It struck me as [U]exactly[/U] the type of subject on which it’s [I]all[/I] too easy to end up being inadvertently misinformed in a forum by someone perfectly well-meaning in offering their own thoughts/suggestions on your situation.

I understand from the web that forex trading is taken so seriously in India that it isn’t even a bailable offence if people have the misfortune to be arrested for it. Again, I think the only person qualified to provide the information you need is probably a local, specialist lawyer who’s familiar with dealing with these issues. Personally, in your position I [B]wouldn’t[/B] want to depend on (or even be influenced in my thinking by) anyone less well informed than that.

5

Hi Lexys,

Thank you for the robust response… Some of the things in your reply, are things that I never thought of.

I want to say a few things… This is not an argument to the points you make but just a “thinking out loud” thing. Your point on consulting a specialist is well taken.

The days of easily being able to open and use banking and brokerage accounts easily and without proofs of identity, residence, and so on, are over.

I do have residence permit and also valid documents in the country that I am discussing.

Given the care of governments and institutions of all kind over money-laundering and terrorism-funding, these days, compliance is both hugely significant and frequently changing, I think.

Both banks and brokerages aren’t going to be too happy about any kind of situation involving someone “using a local relative” to try to circumvent any regulations to achieve something they can’t achieve themselves, I think.

Could you please give your take on the thoughts below, related to the above quoted statement.

As per the plan I mentioned above,

  • I would not be giving the money back to relative from the funds I have in India. I would be doing that from profits earned abroad, gained by investing money abroad (this would not be indirect moving of the money either). If I were to ask a relative to deposit money in foreign bank account, and I in turn deposited money in the relatives bank account from money in India (and not from the forex profits as I mentioned in the plan), I guess that would be laundering.

The plan I mentioned would be similar to money earned abroad from a house you are renting out there. This would come under the purview of the country where the house is being rented.

Don’t you think the purely technical aspects of the regulation are important ?

The understanding which I have is - The FEMA act states (to be confirmed with experts as you suggested), that money (specifically Indian rupees) from Indian sources cannot be converted to/ moved out for the purpose of investing in leveraged products. The aim is to protect the rupee. I doubt they can regulate foreign money earned in foreign currency (aside the taxation aspects).

People, I think, have just translated it inaccurately, simply stating that “Indian residents cannot trade forex”, whereas it should probably be " Indian money cannot be moved/ converted to be used to forex trading"

What is your take on this ? Any thoughts are welcome. Like I said, I will consult an expert, but I would like to understand various angles involved in this.

I have no expertise in this subject at all. It struck me as [U]exactly[/U] the type of subject on which it’s [I]all[/I] too easy to end up being inadvertently misinformed in a forum by someone perfectly well-meaning in offering their own thoughts/suggestions on your situation.

Thank you for your opinions. Much appreciated.

6

I know we’re only chatting, not arguing: don’t worry. :slight_smile:

That was all I [I]really[/I] posted to say (I’m just verbose, and end up saying more than I intended).

Maybe, yes - I don’t know. I think that, these days, it’s perhaps the kind of thing that tends to be “investigated”, anyway?

Ooh, well, that’s not necessarily quite so simple, I think. I actually own a little rented-out flat in another country, myself, and “it depends” - for a start, on whether there’s a “dual tax treaty” between the two countries, I think. (Tax is just as complicated as law, sometimes: I’m not “domiciled” in the country in which I’m “resident”, myself, and the little flat I bought is in a third country).

My guess would be that that’s right. But one must still be wary of the incidental effects of legislation above and beyond its original purposes and intentions? It makes sense that the legislation’s intention was to protect the Rupee, though.

Yes, I see - well, possibly.

My main take is really just that most of it is outside my experience, and that it’s sufficiently complicated and “delicate” to require experienced professional expertise. Which isn’t helpful to you at all - sorry.

(I’m also wondering whether trading CFD’s instead of spot forex [I]might[/I] be a “complete solution” for you, because if you do that, no currencies are actually exchanged, [I]per se[/I], because in effect all you’re doing is having a bet with someone on which way the exchange-rate will move and by how much, something that CFD’s have in common with spreadbetting, but I don’t know enough about them to say anything other than the fact that I’m “wondering about it”!).

7

Thank you Lexys for the reply …