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What is punishment for forex trading in India?

Published by Usman Ahmed, MBA (Researcher)

Reviewed by Bowen Khong, ACCA

Forex trading in India has been the most trending topic for the past few years. With a population of more than one billion and rising unemployment levels, Indian youth always strive to find new ways of earning in the investment secretor. 

Sadly, forex trading is not an easy to start kind of business in India due to restrictions in place by the central bank. “What is the punishment for forex trading in India” is the most frequently searched phrase related to forex trading in India.

In part there is not enough information available on the internet regarding the legal status and punishments for forex trading. In this piece, I take a look at the legal status and relevant punishment for forex trading in India?

Forex Trading In India – Legal or Illegal?

Forex trading is legal in India as long as you trade currency pairs that involve the Indian Rupee (INR). Also, you need to sign-up with the state-regulated brokers holding permission to operate from the local exchanges in India such as NSE, BSE, MCX-SX. At present, traders can trade seven currency pairs, including USDINR, JPYINR, GBPINR, EURINR, EURUSD, GBPUSD, and USDJPY as well as certain cross currency pairs.

On the other hand, it is illegal to trade forex without involving authorized brokers based in India. That means no individual or institute can get involved in forex trading on their own. All forex-related transactions need to be carried out under the guidance of Reserve Bank of India. Also, International remittance for marginal- based trading is absolutely illegal under the FEMA rules. In addition, spot forex trading is also illegal in India. Traders are allowed to trade forex in derivatives such as spread betting, options and futures etc. 

Check out our best Forex trading brokers in India.

Punishment of Forex Trading – The Illegal Scenario

It should be a crystal clear fact that under the FEMA-1999 rules, no individual or the institute can transfer funds outside India for forex trading. However, the Reserve Bank of India governs banks and not the individuals. Therefore, banks are required to keep a check on bank accounts involved in any such activity. 

Many traders might assume that since RBI takes action against banks. Therefore, individuals can’t be held responsible for deviation from what is permissible according to the FEMA rules. That is however not true. If your bank account is found breaching the code of conduct of Anti Money Laundering (AML) guidelines, then your bank might report it to the anti-money laundering agencies, and you could be charged for the violation. 

Given below are some punishments that you may face if you trade forex without following the local Indian laws and indulge in money-laundering; 

Prison

The conviction of money laundering is treated as a major offense. In some states, the convict may also face misdemeanor proceedings. Generally, the person accused of money laundering activity can be sent to jail for up to a year or more. In circumstances where money laundering is considered as terrorist activity, the offender might face imprisonment of as long as 35 years or even more. 

Fines

Money laundering activists can face heavy financial penalties. Depending upon the intensity of the conviction, the accused can be charged from a few thousand dollars up to $500,000. The basic rule governing fine impositions on money laundering perpetrators involves double the laundered amount or $500,000, whichever is higher.  

Probation

Sometimes, money laundering conviction can result in probational charges. You might face legal obligations to remain under surveillance of concerned authorities for a specific time that can vary from one year to three years. During this time, authorities might ask you to report to the inquiring office at regular intervals. Law enforcement agencies might also raid your premises randomly. You might also be asked to take a drug test.

Remember, if you are found in breach of conduct, then the concerned authorities have the right to revoke the probational charges and send you to Jail. It can also be possible that you face prolonged probationary tenure, heavy fines, and other legal implications. 

Why RBI Restricts Forex Trading In India?

Margin based trading also known as leverage based trading, enables traders to trade bigger volumes with limited funds. While it can result in more returns, it also magnifies the risk of loss. The whole margin-based trading process causes the risk of loss of precious foreign reserves which ultimately leads to the outflow of the U.S. Dollars and a subsequent decrease in the foreign reserves.

That’s why the RBI forbids individuals and institutions to trade forex from within the Indian territory. Remember, forex trading through overseas online brokers is a non-bailable offence in India. You can also face heavy fines besides being jailed for months. 

Usman Ahmed, MBA (Researcher)
Usman Ahmed, MBA (Researcher)
Usman Ahmed is a currency trader and financial market analyst with more than 7 years of active trading experience. Besides holding a Masters degree in Business Administration, he has worked for some of the most renewed companies in the forex industry including FXCM, IQOption, MetaQuotes, Alpari, FXStreet, DailyFX and several others. Usman possesses strong technical analytical skills and is famous for his very own, informative and entertaining, writing style. He believes in naked chart trading analysis that is commonly known as price action trading. He follows global financial news and macro-economic events very closely.
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