It doesnt matter if your account will be funded with money earned in US. They only see which country resident you are. So if you are an Indian national, then none of the US brokers will allow you to open Margin account.
I dont know what type of trading you are looking to do, but cash account is still a great option with a US brokerage firm.
What about the withdrawal of money?
and how to tax it?
The best option would be to setup a checking bank account in some American bank and transfer the funds there for your initial investment. After that you can send it to your brokerage account. you can withdraw your profits to that bank account whenever needed. If you want to withdraw it back to Indian account you can use apps like transferwise which hardly takes 1 minute during business hours.
But you have to track your P&L properly. The elaborate statements will be available on your brokerage websites. You will also get 1042-S tax form if your investment had any instrument which might incur a withholding from US Govt. You will have to pay tax on most of your investment/trading in India properly. Maybe hire a CA for you first year taxes. But it should be straightforward. As I trade US derivatives only, I think it comes under " Non-speculative business income".
please leave any questions you have. Will try to answer when I am free as it seems like I see mis-interpretation or over analyzing going on on this. I am also open to get any information others might have as well. Thanks
First, F&O gains in USA does fall under capital gains. But its different. If you hold long term “Long position” on an option (At least 1 year) then you can avail Long-Term capital gains tax rate. If its short term, then it should be added to your primary income and normal salary income tax slabs will be applied. Which makes it kinda similar to the business income in India.
If you are day trading US options in a Cash Brokerage account, then it is completely legal, as there is no margin involved. (not that they will allow us to open Margin account if we are Indian resident). So I think we should file ITR3 for this. I am planning to go to a CA myself for this. Will let you know when I know more on which ITR to fill.
EDIT: I just researched on this a bit deeper and I found some information. As the Securities Transaction Tax (STT) does not apply to a foreign stocks (Atleast not on US stocks), and because there is no mention about Foreign F&O investments, Foreign Stock income (no margin involved) as a whole might fall under capital gains here in India. So If it falls under Short-Term Capital Gains (And no STT), it should be added to your normal income here in India and the normal tax slabs are applied. So maybe thats why your CA told you to mention them under capital gains.
Hi, I am an Indian, and I just want to ask this following question - Can I trade commodity future contracts at CME Group through any authorized foreign broker from India? If yes, what are the formalities I need to undergo to execute these trades without any regulatory legal hassle? Thanks for your time and effort to keep this topic of - “Trading Derivatives in USA from India” active. It’s genuinely helpful. Regards.
As per RBI we cannot transfer funds outside the country for trading.
Yes. LRS is not allowed for trading. And it would be a FEMA violation. So even ED don’t like it.
So investing is allowed but trading is not? But their definition is interchangeable, or it depends on the products we choose to deal, in this case commodity futures?
No margin products are allowed to trade ie NO FUTURES/OPTIONS
Okay, understood. Let me clarify the situation in more detail. My close relative who lives in New York has demat and trading account in her own name and IDs authorized by American Government. But she doesn’t use it apart from occasional investments in stock listed at NYSE, NASDAQ etc. I need to know whether am I allowed to trade from her account on her behalf with her money, and split the profit? I am not intending to send any money outside India. I am just planning to receive it lawfully from the profit split. The profit from trading at CME Group. Thanks for your time and effort. Regards.
Pls consult with your CA regarding this
Yes, that is completely legal and safe.That
is the best option to trade derivatives abroad without transferring any money from India.
You have to check whether your relative is bound by any H1B visa rules to not trade excessively in her account. Ex. For employees working in US on H1B, if any authorities observe that the trading activity is too much for an employee holding a full time job, that could bring her employment under focus.
If your relative is a green card holder, there are no restrictions.
I don’t know about the laws but there is one technical aspect that I know of. The IP address. If SEC finds out that a resident/citizen’s account is operated from elsewhere, while the owner of the account is in US, I guess they will take some action, and you may be aware that US system works better than ours. Using one’s own phone or a computer and doing something while on vacation in India is one thing, and living in US and account being operated from elsewhere is different. And using a VPN for financial transaction is not suggested too, I guess there is a chance of all the data being exposed to the providers, and the providers may not even permit this.
Find this little technical aspect from the official sources and then find out if the laws permit doing this.
Guys whats are the pros and cons of trading from Dubai ?
It’s possible. There are 3 ways that can be thought of, 2 of them being a bit complicated and requires a substantial amount to make it anywhere more feasible than selling covered calls/cash secured puts in Indian underlyings would.
Rule of thumb, when you can’t own a thing outright, control it through debt.
Way 1- Get any US resident to form a Trust in the US. An irrevocable one at that.
Important- Don’t be a beneficiary/Trustee to it yourself. Don’t let your US contact be any of those either.
Find a US resident Trustee. There are many firms that can do that for you for a certain fee.
In the foundational documents about instructions on how to run the Trust, mention selling covered calls/cash secured puts/buying and letting real estate/investing in bonds, etc. as the only ways to generate income. Make those instructions immutable, so the Trustee your contact over there appointed can’t make changes to it and/or can’t be forced to make changes to it by any US court of law.
At any point from there on, no one owns the assets of the Trust and no one is entitled to have any share in it’s earnings other than the Trust itself.
Loan a certain amount to the Trust at an exorbitant 200% apy. You’d need a licence for directly lending anything in the US, but there’s a way to circumvent that- bonds. Get the Trust to issue bonds to you. This will also not get you into the “Person of Significant Control” clause.
You are done.
When the Trust is unable to pay the bonds off, take it to a US court of law (ofcourse, after several years or possibly even decades of consideration😉) and get an order to foreclose on it’s assets. Don’t bring the returns back home.
Rinse and repeat.
I think you can get some sweet tax benefits as well. For more details about that, contact any EY consultant. They’ll for sure help you. 
Way2- Form a company in the Cayman Islands/or anywhere that bearer bonds are still allowed. I know for a certainty that BVI no longer has them.
Follow step 1.
Way3- Perhaps the easiest. Residency through investment. St. Kitt’s and Nevis is the easiest one to get, albeit you’ll have to shell out a good amount and lock it in their government bonds for what I know is a minimum of 6 months. Job done, you’re now not an Indian citizen anymore.
P.S. :- I know of people who’d even sell their grannies to get those juicy (50% roi/7 days) otm calls on those penny stocks.
Overlooking Derivates can we day trade the US markets in the cash segment? Can someone suggest brokers for the same purpose? I’m willing only to use my Indian Bank account for the same purpose.
Did you get a chance to talk to CA about trading US options from a Cash brokerage account?
Day trading US stock market is allowed and completely legal if traded using Cash account. According to LRS, any type of trading which involves “Margin” is not allowed.
So, basically you can trade US stocks under certain rules and regulations and following US settlement times which might violate Cash account rules.
In US, options are not entirely considered a leveraged or margin instrument.
Basically, LRS rules are in place so that they don’t have to deal with foreign margin calls.
There are certain trades that do not need more leverage or margin. Its Indian equivalent to “Cash-and-carry” trades which are allowed in a US Cash account.
Things that are allowed in US Cash account include:
1] Taking long position on US shares. [No shorting]
2] Buying a call option to open a position. [Taking a long position on a call option]
3] Buying a put option to open a position. [Taking a long position on a put option]
4] Covered calls
5] Cash secured puts
Not allowed:
1] Shorting shares
2] Naked options writing
3] No multi-legged option strategies.
Also, you need to keep track of US settlement days.
1] For shares, its T+2
2] For options its T+1 [i.e. if you use all your capital in your cash account by taking a trade today, it will be settled tomorrow (Next business day)] (Need to be aware of US public holidays though
Yes you can. You can also trade naked options buying as well.
Some US brokers:
No. I havent yet. But Somewhere I read that CA recommended them to include them under capital gains. This made sense because there is not margin involved in Cash account and so its not speculative.
But I think this should be added to your salary and then tax should be calculated, because there is no STT on foreign trades.
