Is Forex Trading Legal In India? (2021)

Forex trading is considered one of the most effective investment businesses for generating lucrative returns over a short time. However, due to restrictions in some countries, forex trading becomes an offence if not carried out in a specified way.

There has been a lot of confusion among traders concerning the legal status of forex trading in India. Is it legal to trade forex in India? That question is among one of the most trending searches on Google. In this piece, I take a look at the legal status of forex trading in India. 

Is Forex Trading Allowed In India?

According to the Foreign Exchange Management Act-1999, forex trading is allowed in India as long as traders choose to trade with brokers holding approval from local exchanges, including NSE, BSE, and MCX-SX. Also, traders can only trade currencies that involve Indian Rupee (INR), such as GBPINR, JPYINR, USDINR, and EURINR. In 2015, RBI allowed three cross-currency pairs, including GBPUSD, EURUSD, USDJPY, making the total count of allowed currency pairs seven.

Also, the trading can be carried out in derivatives such as options, futures and spread betting. Traders in India are not allowed to carry out spot trading. 

Hence, forex trading in the given below currency pairs is legal in India;

  1. USD/INR: The pairing of the U.S. dollar with the Indian rupee.
  2. GBP/INR: The pairing of the Great Britain Pound with the Indian rupee.
  3. JPY/INR: The pairing of the Japanese Yen with the Indian Rupee.
  4. EUR/INR: The pairing of the Euro with the Indian Rupee.
  5. GBP/USD: The pairing of the Great Britain Pound with the U.S. Dollar.
  6. EUR/USD: The pairing of the Euro with the U.S. Dollar.
  7. USD/JPY: The pairing of the U.S. Dollar with the Japanese Yen.

How can I trade Forex in India?

The forex market is a decentralized market with no central authority involved. Theoretically, traders are free to buy and sell currencies without going through any formalities. However, there are still some rules and regulations that all stakeholders need to follow. Some countries, including India, see forex trading as a threat to their national sovereignty. Therefore, India has restricted the forex trading exposure of its residents by introducing certain limits as discussed before. However, limitations do not mean that you can’t trade forex in India.  

Given below are some conditions that you must fulfill to trade forex in India:

  1. Choose a currency pair that has an Indian rupee being the base or quote currency. 
  2. Sign-up with a broker regulated by NSE, BSE, and/or MCX-SX.

Due to a restriction of INR-based currency pairs, only a limited number of regulated overseas brokers accept clients from India. However, you can still find some local (India-based) brokers to open a forex trading account. While choosing a broker in India, you should make sure that it has approval from the local Indian exchanges as mentioned before. One good thing I find about the local Indian brokers is that they offer forex education resources in local languages (Hindi, Marathi, Punjabi, etc.) which overseas brokers don’t offer. 

Indian Forex Reserves

Being curious to find out the logic behind various restrictions on forex trading in India. I started my research and came across the logic behind such restrictions. The Indian government intends to keep its foreign reserves at optimum level and it is the top-most priority of the Indian central bank. 

When traders lose on trades and buy more foreign currencies, then the foreign reserves held by the  Reserve Bank Of India (RBI) deplete. Low foreign reserves mean a current account deficit. Therefore, India restricts traders to be involved in forex trading, eliminating the likelihood of a decrease in foreign reserves. Another reason that is often mentioned for such restrictions is that the Indian government wants to protect its citizens from losing their hard-earned money in forex trading. Not to mention, India’s foreign reserves amounted to U.S. $584,242 Million as of January 2021. 

For readers having no finance background, let me also clear the concept of forex reserves. Forex reserves refer to all remittances that are received against services rendered or products sold. The government of India keeps all such funds in a current account, also known as the foreign reserves. The government of India sees foreign reserves as one of its lifelines and discourages any business or action that results in a decrease of forex reserves. 

How to trade forex legally in India?

Forex trading is legal in India as long as you trade INR based currency pairs with local forex brokers. It is prohibited to carry out spot forex trading in India. Traders are allowed to perform forex trading in derivatives such as options, futures, and spread betting etc.

In order to trade forex legally in India, you should open a trading account with any local broker in India that is fully regulated by the government exchanges. The laws concerning forex trading in India were even more strict in the past years. In 2015, the RBI introduced some relaxation and allowed traders to access a few more pairs to trade. However, India still needs to bring some leverage to the existing forex trading framework. 


As per the Indian central bank rules, the transfer of funds to a foreign broker is illegal in India. Not adhering to this rule may lead to grave consequences including but not limited to excessive fines and imprisonment. So being an Indian citizen, you should make sure that you trade with the state-regulated brokers only.  

As India has been transforming and introducing significant changes to its current financial regime, therefore it might not be wrong to say that the country will lift the prevailing restrictions on forex trading very soon.