CFD Trading In India
CFD trading in India can open the door to lucrative markets. But firstly, is online CFD investing allowed and legal in India? We’ll explain the rules before looking at the best trading firms and platforms.
What Is A CFD?
A contract for difference (CFD) is a derivative, meaning you don’t take ownership of the underlying security. Essentially, two parties agree to exchange the difference between the current asset’s price and the market value at the contract close.
Let’s say you were trading CFDs on Indian stocks, such as Coal India. If the market moved against you, you would pay the brokerage the difference between the current market price and the value of the asset at the contract time. If the market moved in your favour, the firm would instead pay you the difference.
CFD trading in India is attractive because it allows for market diversification. You can trade on stocks and shares, forex, futures, options, gold, and more. And because online CFDs are a relatively straightforward instrument, it’s easy to switch between commodity trading and the Indian stock market index, for example.
The other benefit of CFDs is the ability to trade on leverage. Brokerages take collateral, known as margin, and then lend you funds so you can take position sizes that wouldn’t be possible with your cash balance alone. Not only does this increase the size of possible returns, but it also means you have capital left to take positions elsewhere. On the flip side, leveraged investing does increase risk exposure.
For more information on CFD basics, including day trading strategies, see here.
Is CFD Trading In India Legal?
Whether CFD trading in India is legal and allowed is a grey area. The Securities and Exchange Board of India (SEBI) hasn’t yet rolled out laws to regulate CFDs. As a result, there isn’t a licensing system, which means you can’t find regulated firms based in India. Instead there are many unlicensed websites, where users won’t receive any legal protection.
So, if you want to trade CFDs on Indian stocks, for example, you should turn to companies based outside of India. Likewise, Indian residents will need to turn to offshore providers.
How to Choose a CFD Trading Brokerage
The good news is there is a long list of CFD Brokerages in India. Key considerations when choosing a provider include:
- Regulation – Make sure the firm holds a license with at least one of the following regulatory bodies: UK Financial Conduct Authority (FCA), Malta Financial Services Authority (MFSA), European Securities and Markets Authority (ESMA), Cyprus Securities and Exchange Commission (CySEC), Australian Securities and Investments Commission (ASIC).
- Reputation – Not only is it important that the exchange is licensed with a respected body, but also that it gets positive customer reviews.
- Mobile apps – Online CFD trading in India is commonly done via a mobile app. So, check the offered platform will be compatible with your mobile device. Also check you can make deposits and withdrawals from your phone.
- Markets – One of the merits of CFD investing is wide-ranging products. With that in mind, check you’ll have exposure to all the markets you want, such as Indian stock market indices.
- Customer service – Fast and straightforward access to customer support in a language you can understand is important. You don’t want to be jumping through hoops when your money is on the line. Also, if companies are based in different time zones to you, make sure you’ll have access to support during the times you’ll be active.
- Fees – Fees usually come in the form of commissions and spreads. Commissions will be paid on each trade while spreads will include a mark-up for their services. If you wrack up serious trading volumes, even small cost differentials will add up.
See our list of the best online CFD trading brokerages.
What the best online platform is for CFD trading in India will be down to the user. With that said, the MetaTrader 4 (MT4) desktop and mobile platform is the most widely used. It’s reliable, easy to pick up, and allows for advanced charting and pattern analysis. The Traders Workstation (TWS) is another popular choice. Fortunately, many firms today offer multiple options. Sign up for a demo account and have a play around to see which system works for you.
CFD trading in India is allowed, however, there isn’t the robust legal protection found elsewhere. Signing up with a company from India is therefore risky. Instead, it’s worth choosing a brokerage licensed in another jurisdiction. The best firms and platforms can be found on our list.
Is CFD trading legal in India?
CFD trading in India is legal and allowed. However, because there isn’t effective regulatory oversight through a licensing system, Indian investors will need to open accounts with respected offshore brokers. Non-Indian residents can also trade CFDs on Indian stocks through offshore brokerages.
How do I trade CFDs in India?
To start day trading CFDs in India, you will first need to open an account with a licensed broker. Once you’ve deposited funds into your account you can then take a position on your trading platform. For guidance on CFD trading strategies, including risk management advice, see here.
How much money do I need to start CFD trading in India?
Minimum account deposits vary among brokers, but you can start trading CFDs with 4,000 INR. Margin requirements will also change depending on the provider, but are often between 5% and 25%.
Is it free to make deposits and withdrawals CFD trading in India?
Whilst deposits and withdrawals are usually free, if you’re using an offshore CFD broker there may be a currency conversion charge.
Do I need to pay taxes on CFD trading in India?
Profits generated from CFD trading in India may be taxable. The extent of your tax obligations will depend on how your trading activity is classed. See our guide to trading taxes in India for further guidance on day trading taxes.