The Foreign Exchange market, or “Forex market” as it is commonly referred to, is the largest market in the world with more than 4 trillion USD traded every single day. Unfortunately, there seems to be a lot of confusion surrounding the legality of forex trading in India (ie. Is it legal or not). There are many websites, forum threads, and blog postings debating the legality of trading forex in India. Many people say it is illegal, while many still retain that is it legal and many claim to be actively trading in the forex market within India.
This website was created with an aim to teach residents of India about the legality of forex trading in india, which will hopefully clear up the some of the misconceptions which exist out there on the web. When it comes to matters of the law, it is always better to do your own research rather than relying on what complete strangers on the internet have to say, but hopefully this website will make you more aware and better equipped to face the overwhelming amount of information and misinformation which exists.
Forex trading in India is the same as anywhere as in the world. But what exactly does it mean to ‘trade forex’ and why is there so much hype?
When you trade forex, you are basically trading currencies. What does this mean? Let’s say you were going from India to the USA. Typically, you would go to the bank before your trip and ‘exchange’ some Indian rupees for some US dollars. What exactly is happening during this ‘exchange’? What is actually happening is that you are selling Indian rupees (you give them X amount of rupees) and you are buying dollars (you get X amount of dollars). You are ‘trading’ rupees for dollars. It’s just like going to the supermarket and exchanging some rupees for some rice (you give them rupees, they give you rice). Okay, let’s continue with the rice example. Let’s say you bought one kilo (1 kg) of rice in June. At that time, the value of 1 kg of rice was 100 rupees (hypothetical example). Now let’s fast forward to September. Imagine there was a shortage of rice supply in September, and due to decreased supply, the price of 1 kg of rice rose to 150 rupees (hypothetical example). If you still had the bag of rice you bought in June, you could now sell that bag for 150 rupees and make a nice 50% profit off your original investment. That is exactly the same way it works with currencies. You can buy US dollars for example (in the forex market, you can buy and/or sell virtually any currency), and if the US dollar goes up in value the next day, you can now sell the dollars and make a profit. That is a very basic summary. It’s just like any other form of business trading – buy low and sell high. You buy pens for 1 rupee each and sell them elsewhere for 2 rupees each. In the forex market, you can buy and sell currencies anytime. There’s never any shortage of people willing to buy a currency from you or sell you a currency. You never even worry about that – you never deal with people directly; you trade through your broker. All you do is place a ‘buy’ order or a ‘sell’ order, and your order gets placed.