The advent of Forex Trading in India has come forward as a new venture in the finance ad trading sector. In India, the Forex trade can be made with the Indian Exchanges like BSE, NSE, MCX-SX that offers the Forex Instruments. However, these days the Indian exchanges provide several kinds of Forex pairs for trading purposes like GBPINR, USDINR, EURINR, and JPYINR.
It is a fact that Forex trading as an Indian resident cannot be done using all the instruments of trading. Thus it can be said that in India, the global Forex market is not applicable in such a way. It is a fact that the Indian Government has limited the Forex trading in India due to the issue of sovereignty. This can be justified with the statement that the foreign exchange market is a decentralized global market that allows the trading of the currencies, i.e., buying, and selling of exchange of the currencies. Some countries throughout the world consider this decentralized market as a threat to sovereignty.
Primary Reason behind Limiting the Forex Trading in India
But Forex trade proves to be one of the factors for the sudden increase in the economic growth of a country as this kind of foreign exchange market helps in both investments and international trade through the currency conversion. As an example of a foreign exchange market. In case of a business in the United States wants to import certain goods from India. Then it is quite justified that the company of the United States has to pay for the imported goods in Indian Rupees, though its primary income is in the US Dollar currency. Thus many retail traders might or might not know that the foreign exchange supports direct speculation.
Therefore, the evaluation is relative to the value of currencies, whereas the prediction is based on the interest rate that is the differential between the two currencies. Thus it is clear from the above statements that the Government of India has limited the Forex trading for the India residents, but it has not forbidden to trade Forex.
Though it has limited for the Indian residents only to trade the currency pairs that are bench-marked against the INR (Indian Rupee), yet there are several other instruments to trade with the foreign exchange currencies. Thus as long as an Indian resident is trading through an Indian Brokerage. It allows accessing to the Indian Exchanges such as the BSE, NSE, MCX-SX. Thus providing access to the currency derivatives which is entirely legal. For the Indian residents, these trad-able instruments are GBPINR, EURINR, USDINR, and JPYINR. The Reserve Bank of India on 10th December 2015. Has allowed the exchanges to offer the cross-currency futures contracts and the options for the exchange-traded currency in three more currency pairs.
Role of RBI in Limiting the Forex Trading in India
The Reserve Bank of India has also allowed the exchanges to offer the cross-currency futures contracts. Along with the options for the exchange-traded currency in the pairs of GBP-USD, EUR-USD, and USD-JPY with immediate effect. The main reason behind the limitation of India in Forex trading would be discussed in detail further. When the traders trade EURUSD with the non-Indian traders or brokers. If they lose while trading, then they would buy USD from RBI. This kind of activity increases the deficit of the current account. The deficit, in this case, points to the lack of foreign currency reserve.
If most of the Indian residents trade in Forex with the Foreign brokers and the traders outside India. Then the RBI would stand to lose the considerable amount of the US dollars. With the presence of the infamous nature of trading. And where there is a place to lose. Eventually for the majority of the trader’s Foe counteracting this considerable outflow of the US Dollars. Thus the Government of India then has to purchase more of the US dollars. Which is done by selling the Indian currency, INR at a much cheaper rate. Which eventually leads to the devaluation of the INR. Therefore this seems to be the main reason for limiting the Forex trading in India.
List of Other Countries With Restriction on Forex Trading
Apart from India, there are several other countries throughout the globe. Similarly where there are strict restrictions on Forex trading. To name, some of those countries are Belarus, British Columbia (Canada), Burma, Bulgaria, Bosnia & Herzegovina, Cuba, Indonesia, Liberia, Iran, Ivory Coast, China (where there I strict regulation ad event total ban), Myanmar, Malaysia, Macedonia, Montenegro, Pakistan, North Korea, Nigeria, South Korea, Romania, Quebec (Canada), Sudan, St. Helena, Sudan, Syria, Sri Lanka(Lenient restrictions), Zimbabwe, and Ukraine. All the above countries serve under restrictions in Forex trading throughout the globe apart from India. Therefore these countries promote specific guideline and regulations for pushing their citizens away from the Forex trading.