Monday, July 19, 2010

More on Chicago

Murali asks:
Can you please elaborate on the rule of RBI that "since we cannot, open derivative trading accounts aborad".

Does it mean that we cannot open an account with a foriegn broker and trade NIFTY or
We cannot trade any other derivatives - NASDAQ / FTSE.
Can you also clarify about CFDs.

My Notes:

The RBI allows Indian citizens to use foreign exchange for investment  in equity shares, in any foreign country. But, derivatives are not equity, and, this has been clarified by the RBI.

We can open an account with any broker, anywhere in the world for investing in equity. We can remit money from india to the broker. We cannot trade in derivatives, and, no money from india can be sent for this purpose. For that matter, if a foreign broker says that they will accept rupee payment for such trading, then they are probably violating RBI rules. (because they will be converting the rupees into forex and remit it, which is not allowed for derivatives).

There are exceptions, for instance, Oil companies can trade in derivatives abroad for hedging etc.. but these are actual users. A trader is not an actual user of any commodity.

CFD's are contracts for difference, trading mainly in the U.K and Australia. Indians cannot send money for such trading. They are also derivatives.

What if an Indian opens an account with a foreign broker for investing in equity, sends money, then starts trading in derivatives, secretly? Well, you are breaking the law, more so, the foreign exchange law. I would not advise such action.

1 comment:

segviola11 said...

Dear sir,

Thanks a lot for your valuable clarification.

Regards
Murali