Is it legal to trade stocks in USA's stock exchanges as an Indian citizen?


#1

Hi friends,

I have been researching for about 10 hours on this and am unable to find anything conclusive.

Is it legal to trade stocks in USA’s stock exchanges as an Indian citizen*?
How(what are the technicalities involved to make sure that I do it legally)?
Can you please give me the RBI circular regarding it?

I know for a fact that it is illegal to trade derivatives in the USA from India.

Thank you for reading.

*I intend to trade with a foreign broker who obviously won’t have a DEMAT integration.

Edit: I live in India.


#2

It is not illegal to trade in US stock exchange. In fact a lot of Indians living in US trade in that market. But you need a Social Security Number (SSN) to open a brokerage account. This is so that the income from trading/investing can be accounted for and taxed - but it can only be obtained if you are or have have been to US.

Not sure if there are other ways to open a brokerage account in US. I am just sharing based on my personal experience as I trade in both the markets.

-Neha (vrdnation.com)


#3

I live in India.


#4

I have social security account as I worked in US but now in India…it was in 2007 i worked there for 6 months…what else documents required apart from social security number?


#5

@ksksat,

I believe you would also need a US based correspondence address. You might want to apply to one of the brokerage firms and see if it works out.

Here is one of the low cost options:
https://www.ally.com/invest/

-Neha


#6

Yep investing into US stocks or real estate upto $250k per year per person is allowed for Indian citizen. And yes any kind of margin product (equity leverage, F&O, etc) is not allowed.

How to buy stocks on US stock exchanges? I think currently Kotak and ICICI direct have tie up with saxo bank for this. We might have some interesting news on this in the next couple of months.


#7

Sir,

Thank you so much for your time.

Just 2 more questions.

Is it legal to use a foreign (maybe a US) broker for this purpose or is it necessary for it to be done through an Indian broker only? How to avoid double taxation if I use a US broker?

I’ll be following your blog and other channels so that I can get updates by your company regarding it.


#8

You have to use a US broker dealer, Indian companies can’t be brokers in US. There is a Double taxation avoidance agreement with US. So you won’t be taxed twice.


#10

Are you allowed to buy ETFs that have levered exposure ? Like 2x Long S&P ?


#11

I don’t think so one can buy leveraged or inverse etf’s, as leveraged etf’s in-turn use derivatives like fut,options and swaps in their portfolio which are again leveraged products.


#12

@siva: By that arguement one cannot buy a company that has a leveraged balance sheet. My question here is whether we can distinguish between leverage and margin. Please note when buying levered ETFs no margin is required. Any idea ?


#13

Point here is leveraged ETFs use derivatives in their portfolio. They uses futures, options and swaps to replicate the underlying.


#14

@siva: Indeed. But so does corporates that hedge their FX or interest rate exposures via corporate treasury - and you own a share of that balance sheet like you do in case of ETFs. I guess the restriction is to use margin to buy listed instruments rather than buy leveraged instruments in general. Wonder who can give a legal answer ? Would this be under the purview of SEBI or RBI ? I think FEMA - so RBI right ?


#15

These two are different things, can’t be related to each other.

Yes, RBI.


#16

Technically you can, but it won’t be in true spirit of compliance. Btw there are ETF’s on crypto’s. Again, grey area if you can buy or not.


#17

@nithin: Thanks, but I am not sure if the true spirit is to prevent margin trading or having leverage. I am guessing that margin is barred to remove the hassel of international defaults for small amounts, but I cannot see the rationale to prevent leverage as long as its limited to the net cash position. Will investigate more and post if I get a clear answer.

Cryptos are specifically barred. Also as of now I can only find SEBI registered brokers that allow trading in US markets and to the best of my knowledge - they have not yet approved any crypto ETF listed in US exchanges. But then I am not a cryto expert.

In case a broker does offer instruments that are not compliant, who is eventually liable in your personal opinion ? The broker or the investor ?


#18

Both. But if the broker is registered outside Indian jurisdiction, then just the investor.

Btw we are lucky that Indian govt now allows to freely move upto $250k USD for purpose of investing. :slight_smile:

I guess one of the reason why margin products are not allowed is because what happens if you have a MTM loss and need more money to be transferred (but you have already exceeded the quota of sending $250k).


#19

ICICI Direct an Indian online broker allows one to trade in US stocks.


#20

@nithin: Thats a great point about 250k limit. That must be it.


#21

In a global economy dont think we should celebrate capital controls.