Trading Derivatives in USA from India


#1

I’ve been in touch with many foreign brokers in USA and Singapore and most of them allow me to open an account and trade derivatives (including big name brokers). I know for a fact that you can open an account with them and buy US equity stocks, but I am interested in trading Options, and this line from RBI in their Liberalised Remittance Scheme (LRS) is very confusing:
5. All other transactions which are otherwise not permissible under FEMA and those in the nature of remittance for margins or margin calls to overseas exchanges/ overseas counterparty are not allowed under the Scheme.


#2

Yep, that is right. The money taken out using LRS can’t be used for any kind of derivatives or leveraged trading or any product which has concept of margin. LRS money can be used only for investing. There was also a raid held recently by EOW. Check this.


#3

Hi Nithin,

I actually couldn’t finish my question, submitted by mistake and couldn’t edit later on, sorry for that. The article you linked here makes sense, that’s completely illegal. What I am getting at is those broker in the USA legally allow me to open a margin account as well, but obviously, they are not responsible if I break the law.

I was thinking if I am wiring the money as a capital transaction (allowed under LRS) and not for margin calls or remittance, but once I get my cash there, I could either buy shares (which is legal) or use that cash for derivatives, and bring that cash back and show it as profit or loss, that should be fine I guess, I’ve seen a few members of other forum do this and report it back in their ITR. I am not contacting any Indian broker here like in the article, I’ve contacted TD Ameritrade directly and they said yes for margin account opening.

That line to ME “margins or margin calls to overseas exchanges/ overseas counterparty” means that it’s illegal for a broker to remit margin to an overseas exchange or counterparty, hence a broker cannot linked to any exchange or counterparty abroad. Here I am wiring the money to my trading account which is legal, and from there my broker takes care of margin transactions with that cash. I understand I am trying to mould the interpretation to my liking, but I hope this is possible.


#4

The foreign broker has business to gain and is not under the purview of Indian laws, so yeah he will do whatever to attract business. I have spent extensive time trying to figure integration within Zerodha for offering international trading. So I can tell you with whatever little time spent on this, it is absolutely not allowed by law here. But yeah, there are always loop holes and an option to change the regulatory interpretations to your convenience. :slight_smile: I think the only thing you need to be concerned about is that regulators in different countries are working on exchanging data of people participating in the markets. (eg: FATCA).


#5

Also in the unlikely event of a IT scrutiny, don’t we run into the risk of having to produce contract notes, which will give away what was done?


#6

All my hopes are shattered then :frowning:. But at least I am not going to jail now :stuck_out_tongue: Thanks!


#7

That’s right. But I was hoping it was legal. Not going to try any loop holes!


#8

Is it legal under lrs to subscribe for ipo listing on foreign exchange and how taxation is done on overseas stock investment ? Is it as same as done on indian stocks like capital gains on holding for more than one year or different module for that?


#9

A simple way could be: - open a company (proprietorship, LLC,LLP whatever) in one of the freezones (dubai or mauritius- can be done online) which is straight forward. So funds send from india is “capital” for freezone company and freezone company can trade and generate profits in off shore centres such as US,EU, singapore. Then profits are taken back as “dividiend”

Isnt it cool.


#11

I think one will have to start off with a big capital with that route. I read somewhere that to start an investment company in Dubai, one needs a minimum share capital of 25 Million AED. Do you know someone who has done it with a low initial investment?


#12

There r no capital requirement for Free zone companies( sharjah,RAK). Only licence fee which is like 2L -3L p.a.FZC/ FZE r different from local UAE cos which also requires emirate partner. FZC inestors also eligible for visa n work desk

https://www.rakez.com/


#13

Will definitely look into it. Already sent them an email for more information on this topic. Thanks!


#14

Goodluck. Do share details if this method works


#15

Nithin, since you’ve already researched on this subject, are the suggestions from Venkatzerodha feasible if the initial investment is not an issue?


#16

Yeah, you can. If you are ready to go through all that trouble.


#17

@namitjain2890
I think upto Five partners are allowed in FZC who can share yearly fixed cost such as licence fee and auditing the financials of FZC etc.
But I am not sure about opening a trading account with american broker to directly trade in us exchanges… Europe /London seems to be easier place to start and also the trade timing is not late night that of US markets


#18

I’ve already spoken to TD Ameritrade, a reputed broker in the US. They have no problem in opening an individual account from any country. Will have to check about companies though. But yes, if the route via UAE is not cumbersome and expensive, then UK/US or any other market for that matter shouldn’t be a problem