Trading Derivatives in USA from India

Can we trade options as that’s not a type of margin trading and which foreign broker’s are best for investing in usa from India

Hi Everyone,

I don’t transfer funds to my brokerage account and will inform a friend an NRI to fund my brokerage account and transfer equivalent amount to his account in India from my Indian bank account,
This way my funds are credited to Brokerage account without LRS, not sure if this is legal

Thanks,
Umesh V

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Some brokers might check the name of bank account funding the brokerage amount and verify if it matches with the brokerage account holder. If it does not, they would not accept funds or allow withdrawal.

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If we open a partnership company and trading account as LLC, will it not be a problem to send and receive money from Indian Bank account (to US Bank account)?

according to me,

  • you can trade naked options in a cash account (no margin required). TdAmeritrade allows that in cash account
  • if that is a issue, then trading stocks should also be an issue as shorting requires margin.

I can correlate going long with stocks to trading naked options in cash account without margin issues

I came across a Notification issued by RBI on 23rd October 2020 (to be called Foreign Exchange Management (Margin for Derivative Contracts) Regulations, 2020), which mentioned the following (on Page 3) -

3. Prohibition

Save as otherwise provided in these regulations and any other regulations issued under the Act and in force on the date of commencement of these regulations, no person shall post or collect margin for derivative contracts and pay or receive interest on such margin without the prior permission of the Reserve Bank.


According to it, the definition of margin is -

iv) “Margin” means the collateral that the parties to a derivative contract post with or collect from each other
(whether directly or through a third party) to cover some or all of the credit risk that the provider of the
collateral poses for the receiver of the collateral;


And the definition of “Derivative” is the same as the one assigned in Foreign Exchange Management (Permissible Capital Account Transactions) (Amendment) Regulations, 2019 (on Page 5) -

“(da) ‘Derivative’ means a financial contract, to be settled at a future date, whose value is derived
from one or more financial, or non-financial variables.”


Also found some blog posts/bulletins about this notification -


Does this mean that even option buying is now not permitted? (In an earlier post in this thread - Trading Derivatives in USA from India - it was mentioned that Interactive Broker was allowing it for Indian customers)

Tagging @Pro_Trader1 as they seem to be knowledgable about this topic

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They are running a bucket, Topstep and others called OneUp, Earn2Trade, Leeloo and must be more (because its a fabulous business model catering to widespread trader dreams). What you pay is nominal educational fee. What you get is earning from your contractor relationship with them so you become a forex earner like any other. RBI or FEMA doesnt prohibit this as far as I know. Please remember that they are running a bucket exchange with a real facade.

Blockquote

Doing some research on this topic, I found this DISCUSSION on reddit.

The prohibitions for LRS Remittance as mentioned in that article is as follows

Q 2. What are the prohibited items under the Scheme?

Ans. The remittance facility under the Scheme is not available for the following:

  1. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000.
  2. Remittance from India for margins or margin calls to overseas exchanges / overseas counterparty.
  3. Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary market.
  4. Remittance for trading in foreign exchange abroad.
  5. Capital account remittances, directly or indirectly, to countries identified by the Financial Action Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
  6. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

https://m.rbi.org.in/scripts/FAQView.aspx?Id=115#Q2

Which means trading derivatives is ALLOWED as long as margin is not used.

I’ve been reading the thread and have some questions/suggestions. may or may not be legal/possible/feasible as I do not have any experience in this regard neither am I a CA.

  1. Risk defined strategies are allowed in Cash accounts, and we are only prohibited from flirting with margin. so why don’t we simply do that ? remit from here, do credit spreads or whatever floats your boat. getting that money back in India may be hard as I read before and I’d really appreciate if someone could clear it up a bit more.

  2. problem arises when we’re using banks to remit our money to a US intermediary bank to deposit funds in our brokerage account. Instead, can we buy crypto using our Indian banks, then liquidate it into a US bank and then use it for margin account ? I know this is complicated, exposes to crypto market risks, adding a lot of fees & commissions but if there is no other way probably it can be utilized, if at all and I highly appreciate some discussion on this.

  3. Let’s say we get a margin account but always keep our positions covered with cash and never need a margin from broker, does it still hurt RBI ?

thank you guys for all the things you’ve mentioned in thread so far and I’m looking forward to your input on my questions.

P.S. : I probably can talk with a CA, but can’t say for sure. I’ll try to learn as much as possible and post here.

@Pro_Trader1 @namitjain2890

How would you open a US Bank account for crypto transfer?

Regarding the 3rd point, it’s a grey area, yes there is no “margin trading”, but it is a leveraged product, even if you’re covering your risk, the money blocked is more than what the notional value of that contract is.

hi, what were the few documents that you had to submit to rbi, that they asked for to open a leagal margin account

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Crypto trading is banned in India , transacting with it carries huge risk , moreover this idea of crypto being xfer to a US account and then use it for whatever purpose is a stupid myth ,

your statement makes no sense

Hi @kushal_mh, I think I’m in similar situation as you.

Just wanted to ask the procedural aspect of sending fund from NRE to a brokers account.
For me, Axis bank said if transferring to your own account overseas is fine, but to a company’s account(broker) they’re apprehensive if repatriation purpose code should be used or not. I told them it should be S0014 ( which includes Remittance from NRE & Repatriation among others) they’re also asking for broker’s company details.

Just curious did you face something similar?

thanks

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Went through the thread for hours. And I have a few questions.
I started a TD Ameritrade account, and I started doing options and stocks. I had income generated from abroad and I used that to fund TDA so it doesnt come in LRS.

My questions are:

  1. Is it legal to trade options and stocks if money didn’t reach TDA through LRS?
  2. Is it legal to do margin if I did not use LRS.
  3. When do I pay tax? I will remit profits soon maybe once a few months, so do I pay for profits that reach Indian bank or for profit that is still in my TDA account, but not withdrawn to India.

Thanks

Taxes are paid on realized profits even if they are not withdrawn to the bank account.

If you are very clear that the money in your TDA account is not covered under LRS, then I believe you should not have any restrictions in trading with that money.

Can’t comment on taxes.

What about trading binary options at NADEX? It’s regulated

On taxes side, you need to file W8BEN form with US Broker saying your not tax resident in US. In the W8BEN form, they is field for putting your PAN Number to avoid double taxation.

If your an India Resident, you need to pay tax on your capital gains in India. On the dividends and interests, US cuts 30% flat as tax. Read more US/India double taxation.

So if we talk to TD ameritrade , we can change cash account into margin account ? Plz reply