What are forex trading platforms?
These are platforms where foreign exchange transactions can take place. They are used by corporates and traders to hedge their foreign currency risks. These transactions can be on over-the-counter (OTC) spot or derivatives platforms authorized by the RBI. The other avenue is through RBI-authorized exchange traded currency derivate segments like the BSE, NSE and the Metropolitan Stock Exchange of India. The OTC or inter-bank transactions are undertaken over electronic trading platforms (ETP) such as CCIL’s FX CLEAR or Reuters or Bloomberg platforms. They can also be undertaken through authorized brokers.
In November last year, RBI came out with an alert list of 75 entities, which are not authorized to deal in forex or operate ETP for forex transactions. They include OctaFX, Alpari, AnyFX, Ava Trade, Binomo, Exness, Expert , Option, FBS, FinFxPro, Forex.com, Forex4money, Foxorex, FTMO, FVP Trade, FXPrimus, FXStreet, FXCm, FxNice and HotFores.
4
What’s the problem with these platforms?
The problem started during the pandemic when many of these platforms started offering a derivative product called contracts for differences (CFD), which is an arrangement made in financial derivatives trading where the difference in the settlement between the open and closing trade prices is cash-settled. RBI said it had noticed misleading ads offering forex trading facilities on over-the-top platforms and gaming apps. These platforms promise high returns, using features similar to casino games.
Forex trading in India has to be done through a registered Indian forex broker, on ETPs authorised by the RBI or on recognized stock exchanges. According to the central bank, forex trading in India is permissible only in four currency pairs—dollar-rupee, euro-rupee, British pound-rupee and Japanese yen-rupee. These pairs have the Indian rupee (INR) as the base currency. Trading in any other currency pair is illegal and can attract penalties under the Foreign Exchange Management Act (FEMA). Indian citizens are also not allowed to trade foreign currencies overseas, either directly or indirectly.
What about unauthorized forex trading platforms? 5 What are the rules on forex trading in India? What has RBI done so far to check this?
In the past two years, RBI has issued several advisories cautioning against unauthorized entities. Now it has come out with an alert list of 75 entities involved in forex transactions on unauthorized platforms. RBI, however, cannot shut them down as they are registered in countries where they are legal. It has been working with banks and the government for stricter measures to ensure banking channels are not misused. The Enforcement Directorate has attached the assets some of these firms like OctaFX.