I think there is a lot of misconception going on here. You CAN trade options - Buy Calls/Puts, Sell Covered calls and Cash Secured Puts. None of these are margin trades. It is not illegal. None of the brokers will give you margin to Buy Calls/Puts. Period.
Coming to Futures all of them require margin. So, you can’t trade those. But, you can perfectly trade options (above mentioned trades) in US with a cash account as well. It is not illegal as long as you remit the gains back to India and declare it in your ITR.
Hi Namit, I would like to trade intraday in US markets. could you please refer to someone who can guide to setting up a company abroad to establish an account for trading with margin?
I do not have a person whom I can refer to. Just google how to set-up a company in Singapore or any other country. There are companies who do this for you. I found Singapore to be the least shady so I would personally trust companies there.
I think this was made clear earlier in the thread. The problem as @nithin said that it’s a grey area. Basically these trades are allowed in a Cash account in US, and Indians are allowed to trade only in cash account. But cash account according to India is buying and selling fully paid shares, for US it includes these strategies as well. India has never said it’s legal, but it’s still a cash account, hence the grey area. US and Indian laws are different. You’re sure to get scrutiny if your size is big, good luck explaining this to officials.
@namitjain2890@nithin - Think i saw this in the thread as well as the LRS from RBI but hope you can provide direct feedback. You cannot remit money from India and use it for margin trading in the US per the LRS but any money made in the US (already in a US brokerage account) can be used for F&O trading even if you live in India and you can remit any portion of the principal and gains in to India as you see fit?
@nithin@karunalaganan hai , i am trading in USA through different broker through direct opened account , i am allowed to trade in option like covered call , cash secured put, calendar spread, iron condor and spread , except naked option selling , seems no problem at all
I don’t think the broker really has any issues allowing, especially if the broker is not based out of India. The issue is for the individual as it potentially is a FEMA violation.
As @nithin said , the US broker won’t have any problem at all, as far as they see the account, it’s a CASH account so they will allow till option tier -3. For US based brokers, your account is a simple IRA account and only CASH positions are allowed in that account. Things that they will allow to do:
Take LONG position in a stock and then sell COVERED Call against it.
Spreads are allowed only in European style options (SPX, RUT, NDX, XSP, GDX and so on) - they are indexes. Ratio spreads will still won’t be allowed but backspreads will be allowed. Only those backspreads are allowed where you are taking in defined risk. Long Calendar spreads won’t be allowed as trader is taking in naked risk for the near term expiry.
You can convert your position to COMBO but you will have to enter three trades for taking in a position like that.
LRS comes into picture when one is trying to send money out of India for any purpose and RBI will block that money if a trader wants to do it for providing margin. RBI stand is very clear, they don’t want to allow countries issuing a margin call to a trader based in India as India may or may not have a treaty in place to protect the broker from unnecessary risk. In India buying CALL and PUT trades are also considered buying on margin because SEBI has the SPAN+EXPOSURE risk margin policy in place, USA doesn’t have this - they say “you are in CASH account, so you cannot take any position that is more than the account value be it settled money or not settled money”.
There is only way to know for sure, either a trader who has been doing this for years and has been audited once comes forward and tells us - “yeah! go ahead, there is nothing wrong in doing this if you are doing via US CASH account” or a Lawyer/CA comes forward and shares with us how the audit will look like for W-8BEN holders of CASH accounts. I doubt either of these two entities will ever come forward and share with the whole world.
have you filed your audited W-8BEN yet for 1 financial year? Or you have just started doing this year/ What is your CA saying about W-8BEN - Please share.
I didn’t mean to say Bank will stop you. Its your money and you have full rights to remit it out of India. My question to you is if you have audited 1 year financial tax filing along with W-8BEN. I would understand and actually anyone would if you don’t want to disclose that information.
As it has been said previously in this thread, its all about following the RBI and SEBI regulations in good spirit. If your CA is happy with your audit , do what ever you are doing to make money. BTW - full disclosure. I am planning to convert my US TDAmeritrade margin account to CASH account once I am back to India and trade allowed options. It will just be good to know if someone else is doing the same and has audited taxes done.
if its just upto audit then my CA would audit anything i want and my W-8BEN could easily be audited my him but the issue is whose risk it is to comply with rbi provisons , is it my or my auditors.
You are complying with the law by not doing any margin trading but do you think ITO will be able to understand this statement "Sir - its PUT and CALL and really we are not using any margin, go read this zerodha varsity chapter " Good luck with that.
its not the matter of ito and they are only concerned with tax collections related matters.
Do you really think ito would question you for this . P.s I am nowhere saying that its legal or not but its related to banks/rbi and not to tax audits
If you already have money made in the US in your TD Ameritrade Margin account and don’t plan to remit money out of India, only money into India, why would you convert the account?
LRS seems to indicate that remitting money out of India and then using it in a margin account is not allowed but if it’s money made outside, I don’t what the concern would be. Thoughts?
Can I buy and sell stocks the same day?
But I do it only twice a week after the cash has been settled.
Say, I buy and sell 1 trade on Monday and then make another trade on Thursday. Would that be legal?
