Trading Derivatives in USA from India

[Ragavendran_V]

Hi Karan,

  Can you provide details of these offshore company agents? 

Thanks,
Ragavendran

[KaranM]

Sure…these are some of the companies i contacted…
www.sfm.com
www.wwincorp.com

ICO Services - Offshore company formation, Offshore bank account

www.offshoreww.com
Fidelitycorporate.com
There are several others i contacted but i cant remember them on top of my head…
Be careful as some of these can be fraud…
Hope this helped…

[siv1]

@nithin @siva apologize for asking the same question. I worked and lived in the US. My earning I left them in accounts such as E trade. Do you think it is ok to sell Cash Secured Puts ? For one this is not related to LRS and second cash secured puts are not margin. Are they ? Feel free to give me your opinion , any other relevant FEMA cases from Live law , practical advice … etc…

I applaud the fantastic work done at zerodha .

I am an Indian citizen and a complete Indian resident by both IT and FEMA definitions

Siv

[nithin]

@siv1

apologize for asking the same question. I worked and lived in the US. My earning I left them in accounts such as E trade. Do you think it is ok to sell Cash Secured Puts ? For one this is not related to LRS and second cash secured puts are not margin. Are they ? Feel free to give me your opinion , any other relevant FEMA cases from Live law , practical advice … etc…

I applaud the fantastic work done at zerodha .

I am an Indian citizen and a complete Indian resident by both IT and FEMA definitions

I am not an expert on this, but I think if you can trade derivative or not is based on your resident status. If you are an Indian, I think the rule applies that you can’t use your foreign money for margin trading.

@somnath248 can we try getting some info from our lawyers and share here?

[siv1]

@nithin thank you nithin @somnath248 would love to hear the opinion of your lawyers . As far as read the money earned by you is covered by FEMA section 6(4). And this has no constraints on it.

But then there is the practical side of the implementation.

Also many US MNC s like Microsoft Intel etc offer stock options to their Indian employees. And in some case while executing the options there will be outflows of money. How is that governed

Would be grateful to receive your thoughts. Cash secured puts and covered calls are some low risk low reward ways to income small income. Wondering if it is possible to do so.

Siv

[somnath248]

@siv1

@nithin thank you nithin @somnath248 would love to hear the opinion of your lawyers . As far as read the money earned by you is covered by FEMA section 6(4). And this has no constraints on it.

Hey Siv1,

As far as I know, trading/investing of any scrips/instruments in the US with income/source of money that is generated from outside India or kept in your FCNR (or such similar) Account should be fine. It is only when you are remitting money that is earned in India to the US under LRS, you will not be permitted to trade in margin/leverage or forex products.

@siv1

Also many US MNC s like Microsoft Intel etc offer stock options to their Indian employees. And in some case while executing the options there will be outflows of money. How is that governed

Remitting money to purchase stock options are not leveraged/margin products, so it should be fine remitting such money under the LRS itself.

[lazy]

there is no limit until you have cash settled, cash needs to be settled before you sell, for settled cash you can buy and sell immediately

[lazy]

Hi quicko team, I guess considering you’re a tax team you might have idea about this? thanks for the answer!

I want to know if intraday trading in US market (stocks) using cash account(no margin) is legal or not?
Because RBI has not mentioned anything related to this!

If yes under what income will it fall if not capital gains?

[Ragavendran_V]

Hi @somnath248,

I know someone who earned money in Canada and the money still resides in his Canadian bank account. Now he is an Indian resident, if he trades in US exchanges on margin, should he pay tax in India or US or Canada?

Thanks,
Ragav

[kanchanagro]

Is it legal to trade in funded account provided by firms like Topsteptrader or earn2trade in emini future from india where we dont have to use our fund & work on 80:20 profit sharing ratio in favour of traders.
( https://www.topsteptrader.com/ )

[Prakhar_Agrawal]

You mean 80% profit sharing and funds are provided by them, it’s insane

[kanchanagro]

ya check their model. They hardly risk anything

[HSL]

The trader’s 5000 usd are still in stake !!! Check the video on that website …

[Prakhar_Agrawal]

Personally these kind of stuffs looks like nothing more then bucket shop to me

[kanchanagro]

true but u can withdraw it if u wanna close ur a/c. So that is ur investment to continue trading & that money is earned on funded a/c. not deposited by you.
But still not clear whether trading such funded a/c is legal or not. If ny1 doing this plz guide.

[Rishabh_Gupta]

I have some vested options (not RSUs) under the ESOP program by my employer in an eTrade account. Unfortunately sell to cover isn’t allowed for the same and only way is to wire money to buy the options first and then sell the same. Basis the thread above, I am not sure if there is a legal way to do this? Since it may be classified as remittance to buy options.

Also, in case I do figure out a way to exercise the options. Can I use the proceeds to do margin trading?

[niranjan1]

Would this mean, that funds in the RFC account can be remitted for margin trading outside India?

Any opinions on this?

[Prayag]

@somnath248

Hey Surya,

The RFC account is generally an account opened to receive foreign currency from the earnings made by services rendered outside India/to a person who is not a resident Indian or from any Export related activities generally, or a NRI may keep it in such an account while returning back to India permanently or from gifts. This is not money that an Indian would be remitting from India towards another country or converting from rupees to another currency.

@somnath248 Can an Indian citizen open an RFC account? I am confused about this because as per RBI (Reserve Bank of India - Frequently Asked Questions) it seems possible to do this (as per my limited understanding of the confusing legal language)

Q1. Who is a person resident in India?

Answer: Sec 2(v) of the Foreign Exchange Management Act, 1999 (FEMA) defines a person resident in India as:

(i) a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-

(A) a person who has gone out of India or who stays outside India, in either case-

1. for or on taking up employment outside India, or
2. for carrying on outside India a business or vocation outside India, or
3. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

(B) a person who has come to or stays in India, in either case, otherwise than-

1. for or on taking up employment in India, or
2. for carrying on in India a business or vocation in India, or
3. for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

(ii) any person or body corporate registered or incorporated in India,

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India;

But when I checked different bank offerings (like ICICI, HDFC, Federal Bank, Bank of Baroda, IDBI Bank, etc) in this area, all seem to be catering specifically to NRIs or PIOs and not Indian citizens

There is an RFC Domestic account (which @suryateja also mentioned in their post - referenced below) and it seems that it is possible for an Indian citizen to open that account (Axis Bank’s offering specifically mentions this is for Indian Resident and not NRIs)

@suryateja

@somnath248 Good to hear this. I work remotely and receive USD as a wire transfer to my domestic savings account. One of my bank staff recommended a foreign currency account which I assume is this: https://sbi.co.in/web/personal-banking/accounts/saving-account/resident-foreign-currency-domestic-account

But there are two major problems with RFC Domestic Account -

• In the SBI offering, on their Terms and Conditions page, they mention -

  Special Condition

  Conversion of account balance:- As per RBI guidelines, the sum total of all the credits received in RFC (Domestic) account during a calendar month, less amount utilised, should be converted into Indian Rupees (crystallise) on or before the last working day of the succeeding calendar month after making adjustments for forward commitments.

  This makes keeping foreign currency impossible for over a month in these accounts as they get auto-converted to INR.

• As per the RBI FAQ that I linked in the starting of this post and the RBI FAQ which @suryateja referenced in their post, only RFC accounts are given exemption from LRS and not RFC Domestic accounts (screenshot of the table highlighting the difference between these account types taken from the above RBI FAQ page).

  

  The permissible debit transactions in an RFC Domestic account (as per SBI website) -

  

Hence using foreign currency deposited in an RFC Domestic Account for derivative trading doesn’t seem to be possible

I am an Indian citizen (aka a “Resident and ordinarily resident in India (also known as resident)” as per the Income Tax Law) and have a source of income through freelancing work for foreign clients. Mainly, I wanted to ask If it would be possible to deposit that income directly into an RFC account (which is exempt from the LRS limitations)?

In case someone is interested, a few news articles which explain the difference between various residential statues -

• https://www.business-standard.com/article/economy-policy/are-you-a-citizen-or-resident-of-india-115011900002_1.html
• Did you know: the difference between a resident, non-resident and resident but not ordinary resident | Mint
• income tax rules for nri: What are the new rules for determining NRI status in India and how income will be taxed - The Economic Times

On a concluding note, this hypocrisy about not allowing futures/options trades outside India is entirely on a different level. On one side, it is nearly impossible to trade derivates (outside India, especially the US) for an Indian citizen (except the few types which @namitjain2890 mentioned in regards with Interactive Broker - https://www.interactivebrokers.co.in/en/index.php?f=38144&p=tradingrequirements#trading-requirements:~:text=Limited%20option%20trading%20is%20also%20available%20with%20ANY%20Investment%20Objective but that also falls in a grey area of a sort) but people from other countries (aka FII) can easily participate in the Indian derivatives market and contribute a significant amount of the volume (https://www.motilaloswal.com/markets/derivative-market/FII-Statistics.aspx). Other than the SGX Nifty 50 Index Futures (whose volumes are growing continuously as per Singapore Exchange (SGX) and Singapore Exchange (SGX) ), NSE is also part of the Part 30 Exemption program of the CFTC which allows US investors to directly bet on Indian derivatives (NSE-BSE: Investing In India Made Easier For U.S. Investors ). Everyone outside India can participate in the Indian derivative market but Indians can’t participate in any derivative market outside India. I think it would be better for NSE/BSE to collaborate with Nasdaq/S&P 500 and introduce US market futures/options in Indian exchanges itself (like SGX did for Nifty)

@siva @nithin My other question is regarding buying ETFs. As you mentioned in one of the posts earlier, buying Inverse ETF might be considered legal (sort of a grey area). Would it be legal to purchase leveraged ETFs like the ones mentioned in Most Traded Leveraged ETFs for Q4 2022?

@nithin

ETF isnt’ a leveraged product. In the US u can shortsell stocks and hold it for long term. So this ETF shorts. Purchasing ETF’s is allowed for Indians. But yeah, kind of grey area though.

[nithin]

@Prayag

My other question is regarding buying ETFs. As you mentioned in one of the posts earlier, buying Inverse ETF might be considered legal (sort of a grey area). Would it be legal to purchase leveraged ETFs like the ones mentioned in Most Traded Leveraged ETFs for Q4 2022?

There aren’t explicit rules around this. We just have to go by the law in spirit.

[Slayer]

He is liable to pay taxes in India if he is an Indian resident for tax purposes.