You are currently viewing
<span class="bsf-rt-reading-time"><span class="bsf-rt-display-label" prefix="Reading Time"></span> <span class="bsf-rt-display-time" reading_time="5"></span> <span class="bsf-rt-display-postfix" postfix="mins"></span></span><!-- .bsf-rt-reading-time -->Is Forex Trading Legal In India – Punishment For Illegal Forex Trading 2023

Is Forex Trading Legal In India – Punishment For Illegal Forex Trading 2023

Is Forex Trading Legal?

Yes. However, is it legal in India? – You may be considering trading forex in India, but before you do, I’d want to offer you a full account of what awaits you down the road.

is forex trading legal in India?
Is Forex Trading Legal in India?

Table of Contents

Forex trading has always drawn traders from all over the world, owing to the fact that the forex market is the world’s largest and most liquid market. According to Bis Triennial survey, the total value of the global forex trading market is estimated to be around $2.4 quadrillion, or $2409 trillion. In the last decade, the global daily turnover of currency trading reached $6.6 trillion.

Currency trading in India, on the other hand, presents a unique set of challenges. Aside from the RBI’s strict regulatory restrictions, there are few options for forex trading in India.

In this article, I will go over how to start trading legally in India, as well as the restrictions and penalties for illegal forex trading in India.

What is forex trading?

Forex trading is the exchange of one currency for another. Exchange occurs for a variety of reasons, including travel to another nation or the use of services offered in another country that demand payment in the currency of that country. However, around 70% or more of all forex transactions are done with the intention of profiting.

How can you make money by exchanging one currency for another?

Because currency values fluctuate in relation to one another, one can profit by purchasing or selling currencies.

For example, if you believe the value of the USD (dollar) will rise in relation to the INR (Indian rupees), you can buy the USD/INR pair and profit if the value of the USD does rise against the Indian rupees.

Forex Market

The forex market is made up of large financial banks and institutions that exchange large amounts of currency through an interbank system, small brokers and banks that facilitate these transactions, and retail players who trade currencies for profit.

All other markets, including the stock market, commodity market, ETF market, and CFD market, pale in comparison to the size of the forex market.

Because the forex market is a global market with participants from all over the world, you can trade forex 24 hours a day, except on weekends.

Currency pairs are traded in the forex market, and the main drivers of currency price changes are demand and supply. There are seven currency pairs that account for 73% of total traded volume. Here is the list of major currency pairs

7 major currency pairs
Source: Statista
  • EUR/USD  Euro and united states Dollar
  • USD/JPY   United states dollar and Japanese Yen
  • GBP/USD  British pound sterling and united states dollar
  • AUD/USD  Australian dollar and united states dollar
  • USD/CAD  United states dollar and Canadian dollar
  • USD/CHF  United states dollar and swiss franc
  • NZD/USD  New Zealand dollar and united states dollar

Spot forex vs. currency derivatives

Before we discuss the legality of forex trading in India, there is one more important point to consider about forex trading. The instruments used to trade forex are typically of two types –

Spot forex and derivatives.

As the name implies, spot forex is a settled trade that occurs between buyer and seller without the intervention of an exchange. This type of spot trading accounts for the majority of forex trading outside of India.

[Suggested Reading : Types of Trading]

Is Forex Trading Legal in India?

Forex trading is legal and permitted in India, but only for certain currency pair derivatives and on regulated exchanges such as the NSE (National Stock Exchange), the BSE (Bombay Stock Exchange), and the MSE (Metropolitan Stock Exchange).

When it comes to currency trading in India, many traders are perplexed. In addition, some foreign broking platforms falsely present themselves as regulated brokers for spot trading. The Reserve Bank of India (RBI) is the monetary government authority and also the custodian of Indian foreign exchange reserves.

Anything relating to currency and forex is directly under the authority of the RBI.

Therefore, if you are an Indian citizen and want to trade in currencies, you must read the RBI’s guidelines for currency trading very carefully. 

Forex trading in India RBI guidelines

The FEMA Act 1999, which took effect on 1 June 2000, regulates all foreign exchange transactions. It states clearly that remittances made on the basis of speculative activity and currency trading outside of India do not fall under the purview of the Liberalized Remittance Scheme, or, to put it another way, “it is illegal if you are sending INR outside of India for currency trading.”

Also, according to the latest press release by RBI on February 03, 2022   :-

“It is clarified that resident persons can undertake forex transactions only with authorised persons and for permitted purposes, in terms of the Foreign Exchange Management Act, 1999 (FEMA). While permitted forex transactions can be executed electronically, they should be undertaken only on ETPs authorised for the purpose by the RBI or on recognised stock exchanges (National Stock Exchange of India Ltd., BSE Ltd. and Metropolitan Stock Exchange of India Ltd.) as per the terms and conditions specified by the RBI from time to time. It is also clarified that remittances for margins to overseas exchanges / overseas counterparties are not permitted under the Liberalised Remittance Scheme (LRS) framed under the FEMA.” 

Source : RBI Press Release, Feb. 03, 2022

Punishment for illegal Forex trading in India

Section 13 of the FEMA Act of 1999 outlines the punishment for illegal activities related to the act. It states unequivocally that any violation of the act will result in a fine of three times the amount involved in the violation, as well as a term of imprisonment that may last up to five years.

It’s important to note here that any transaction involving a forex exchange is on the radar of the bank.

It’s a duty of banks to investigate and report any transaction that violates the FEMA act.

There are ways that illegal trading platforms are attempting to break the rules and laws. The RBI has warned new traders on several occasions not to believe any deceptive information.

[Suggested Reading: Best commodity brokers in India]

How to legally trade currency in India?

Despite some restrictions for forex trading, it is possible to trade in currencies in India.

Currency trading in India falls under the currency derivative segment (CDS).

If CDS is available with your broker, you simply request that they activate the account for you.

Once the currency segment is activated on your existing Demat account, you can start trading in currency futures and options. 

Currency pairs allowed in India for trading


Cross Currency Pairs – EUR-USD, GBP-USD and USD-JPY 

Please be aware that not all cross currency pairs may be displayed in your trading platform. It is possible your broker does not facilitate trading of all currency pairs.

[Check complete list of available currency pair by exchange here]


  • Forex trading carries significant risk, and in addition to the leverage risk, there is monetary risk depending on where you live.
  • India is a developing country, and its foreign exchange reserves must be safeguarded at all costs. This is one of the reasons why spot forex trading is severely restricted.
  • Despite numerous warnings from the RBI, some online trading platforms are violating forex trading rules and guidelines.
  • Currency futures and option contracts for EUR/INR, USD/INR, JPY/INR, and GBP/INR are available for trading in India.
  • Cross currency pairs are also available, depending on your brokers’ availability.
  • Finally, it is clear that forex trading is legal in India if you abide by RBI requirements and deal only with licenced brokers.

Author is Senior Trading Analyst
At Bulls Arena Trading
New Delhi




    Rupin Joshi Senior Technical Analyst, Finance Writer, and Trading ExpertRupin Joshi is a seasoned Trading Expert with over a decade of experience. As a prolific Finance Writer, he has authored numerous research papers in Technical Analysis and Price Action. Rupin's insights and strategies have earned him global recognition, including awards in Trading Competitions. Currently serving as the Director at Bulls Arena Trading, he continues to empower traders and investors with his expertise and innovative approaches.