Trading Derivatives in USA from India

F&O
33

Hi Nitin, I have been reading about Indian citizen trading on international exchanges for quite some time now and every road leads to the same destination. It is illegal to trade in any margin products outside india. buying stocks is legal but buying or selling futures is illegal. It is crystal clear as of now. But what is not clear and maybe a possible loophole (maybe) is buying options (calls and puts). Like in India, when you buy a call or put, you pay the full price (quantity * premium) therefore its not technically using margin. Selling options is definitely using margin. But buying options ??? Would that be considered a margin / leveraged product ? What is your view point on that.

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34

Hi Priyank,

Even though you are buying options by paying only the premium, if you look at it rightly you are entering into a large value contract by paying a small amount called premium and this also is considered leverage or a margin trade.

Cheers,
Lindo

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35

Yep, this would be considered as a leveraged product.

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36

Hi namit
Did you get any response from any free zones of uae? Any luck on this option? Please share details
Thanks
Raghavendra

37

Hi Nithin,

  Are Indians allowed to do day trading in US stocks? If we don't use leverage, is it allowed legally?

Also, it looks like there are no futures for individual stocks in US exchanges. They have only options. Am I right?

Thanks,
Ragavendran

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38

I have posted a similar query here: Can i trade the s&p emini futures from india without funding from ind?
would be great if anyone could answer it

40

you cant trade futures, but what about options, since there is no margin required while buying option premiums

41

Hi namitjain2890,

Thanks you brought up this discussion here, Its so sad that we cant trade the most developed markets from india.

All of you guys seem to agree on the suggestion made by TraderVenk, However i have doubts

  1. Is it legal to carry out margin trading in the name of the company set up aborad, I thought even this route is illegal.
  2. If you set up a company abroad, are there any restrictions on the nature of transactions to be carried out by the company.
  3. You still have to submit the audited transactions of the company , if the indian authorities require it , can it lead to problems
  4. Is it possible to remit funds for margin trading under RBI approval route ?
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42

As per FEMA … Person resident in india includes:

Any person or body corporate registered or incorporated in India.

• An office, branch or agency outside India owned or controlled by a person resident outside India

• An office, branch or agency outside India owned or controlled by a person resident in India.

So, do you still think we can go this " setting up a company " route

43

Are you sure about this???. Can you point me to relevant sections of FEMA. Who knows India could be giving whole new meaning to word “Resident”

BTW Body corporates are not an office, branch or agency. they are legal entities

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44

Hi TraderVenk,

here it is:
https://indiankanoon.org/doc/158543604/

please also clarifty this part " an association of persons or a body of individuals, whether incorporated or not, "

I was also going through the Overseas Direct Investment procedure, to get an idea about the setting up company route, and it appears that we required a approval from RBI to carry out any transaction that falls in finacial services category. ( https://m.rbi.org.in/Scripts/FAQView.aspx?Id=32#_Toc453240633 )

I am not sure of trading can be a financial services activity , but one of the statements says

"Trading in Commodities Exchanges overseas and setting up of JV / WOS for trading in Overseas Commodities Exchanges will be reckoned as financial services activity and will require clearance from Securities and Exchange Board of India (SEBI) on account of merger of Forward Markets Commission with SEBI."

Only a company already engaged in financial services in India and has showed net profit for last 3 years is allowed to operate in any financial services activity outside india.

I am not an expert in these complex legal stuff, I am sure there are many people here who have already researched on this topic, I would request you to share an opinion on this matter.

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45

I think u r getting confused with lot if thinks here.
A. A body corporate incorporated by an individual outside india is not a association /body of individuals residing in India
B. A JV or WOS is formed by Indian party not Indian resident. (Wht is the difference chk with RBI site) Indian resident incorporates a private company of LLC LLP which is a seperate legal entity and resident of host country.
C. Trading on your own account is not a financial service you r offering to anyone.

I think if u r interested u need to approach some company formation agents

Capital account transaction allowed under LRS scheme. Taken from RBI master circular

. The permissible capital account transactions by an individual under LRS are:

opening of foreign currency account abroad with a bank;

purchase of property abroad;

making investments abroad- acquisition and holding shares of both listed and unlisted overseas company or debt instruments; 5acquisition of qualification shares of an overseas company for holding the post of Director; acquisition of shares of a foreign company towards professional services rendered or in lieu of Director’s remuneration; investment in units of Mutual Funds, Venture Capital Funds, unrated debt securities, promissory notes;
setting up Wholly Owned Subsidiaries and Joint Ventures (with effect from August 05, 2013) outside India for bonafide business subject to the terms & conditions stipulated in Notification No FEMA.263/ RB-2013 dated March 5, 2013;

extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives as defined in Companies Act, 20136 .

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46

Hey Thanks a lot for your response , I will check as you said.

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47

“An office, branch or agency” of what? They probably mean an office branch or agency of a company registered in India. This company will be registered in a different country, all the audits will happen in that country, Indian government probably does not have the right to ask for the audited reports. All they can ask about is the shares I own of the company and dividends received.

These are just my interpretations, need to dig in further. But considering everything, it should be possible to trade via this route as far as my understanding goes, but it’s good to be completely clear before initiating.

48

money from India using LRS shouldn’t be used. Money/Salary in netherlands can be used for european markets I guess no issues. Check local law applicability

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49

We can file a tactical RTI and get this clarified from big Boss RBI. In future if in troubled waters RTI shall provide immunity

50

Hi TraderVenk,

If one goes through this route , would you set up this company only for the purpose of trading or this would be setup for some other purpose ?
I consulted a lawyer about this route, he says that
" When you bring the profits back to india, you will have to show how the company generated profits and it is quite apparent that you are doing this indirectly which is not allowed directly "

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51

The profits will probably be in the form of dividends or sale of shares, not business income. Hence, I don’t think we have to report the nature of the company’s business.

52

Ohh…man… I thought this conversation was over…

Since you have gone to a lawyer, I think u should take it to logical conclusion by engaging the same lawyer to file a PIL in a court and appeal so…on. U know … u must have judgement in your favour before starting anything.

Not everyone is as careful as you are. u see… I have a set up overseas for this purpose and I am ok with it.

53

Is Day trading also comes under margin trading???