All You Need To Know About Binary Options Trading in India!

In recent times, binary options trading is getting popular very quickly. It is a blessing for the people of developing and underdeveloped countries for finding another way of income. This has the potential to improve their living standards. And if we consider India specifically, the scenario is almost the same. People take it as an exceptional way of making money with their regular jobs and businesses. This situation becomes ambiguous after the restrictions on forex trading by the Reserve Bank of India. Let's have a look into the basic question about the legal aspect of the Binary Option in India.
 

What is Binary Trading or Binary Options Trading?

A binary option is a financial product where the parties involved in the transaction are assigned one of two outcomes based on whether the option expires in the money. Binary options depend on the outcome of a "yes or no" proposition, hence the name "binary." Binary options have an expiry date and/or time. At the time of expiry, the price of the underlying asset must be on the correct side of the strike price (based on the trade taken) for the trader to make a profit. A binary option automatically exercises, meaning the gain or loss on the trade is automatically credited or debited to the trader's account when the option expires. That means the buyer of a binary option will either receive a payout or lose their entire investment in the trade--there is nothing in between. Conversely, the seller of the option will either retain the buyer's premium or be required to make the full payout. A binary option automatically exercises, meaning the gain or loss on the trade is automatically credited or debited to the participating parties' accounts when the option expires.
 

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Is Binary Trading Legal in India?

While hotly debated among the Indian online trading community as to whether it is illegal to trade binary options in India, technically speaking the answer is a simple “No”. Unlike forex trading in India which is tightly regulated by the Securities and Exchange Board of India, there are no equivalent legal restrictions imposed on Indian's trading binaries. Due to the lack of locally regulated brokerage firms, many traders in India have resorted to dealing with offshore brokers, some of which are regulated and others unregulated. To have a better understanding of the regulatory issues surrounding online binary trading, let us examine in more detail the financial industry's regulatory landscape. In India, the main regulatory bodies which are in charge of regulating the financial industry are the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). The Reserve Bank of India The RBI is India's Central Bank and plays a vital role in implementing the monetary policies of India. It also acts as a regulator and supervisor of India's financial industry, particularly the banking sector. Another key function of the RBI is the management of exchange control specifically the outflow of Indian rupees out of the country to facilitate trade payments and also to maintain the stability of the forex market in India.
 

The Securities and Exchange Board of India Established in 1988, SEBI acts as the regulator for the Indian securities markets. Its principal responsibility has been described as “hellip to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental there to”. SEBI however plays 3 roles as a regulatory body for the Indian securities market. It acts as a quasi-legislative, quasi-executive and quasi-judicial body. In its role as quasi-legislative, SEBI drafts the regulatory requirements for the industry. In its executive role, SEBI conducts investigations and takes enforcement action. Finally, in its judicial capacity, the SEBI makes legal rulings that the industry has to abide by. With all 3 functions rolled into one body, this makes the SEBI an extremely powerful regulatory body. Forex trading in India is highly restricted due to the fact the RBI is trying to control the outflow of INR in an attempt to reduce the country's current account deficit. With forex trading, you are essentially dealing with currency pairs. For an Indian trader, this means exchanging the INR for USD or EUR. Hence to stop this outflow of INR out of the country, the RBI ruled that online forex trading may lead to Indian traders violating the Foreign Exchange Management Act (FEMA). The only way which Indian traders can trade forex is when the currency pairs that they trade are paired with the INR. However, all these rulings do not apply to binary trading in India as the trader is not trading in the currency per se but rather on a derivative. But because of the lack of a legal framework to govern binary trading in India, SEBI does not issue any license to any binary brokers nationally. In order to trade binaries in India, a trader must sign up with brokerage firms that are based offshore.

How to Trade Binary Options in India?

There are two options that will allow you to trade Binary Options and fixed-time trades in India. These are as follows:
1. If you want to trade Binary Options legally, you need a demo account. Demo Accounts allow users to play with legal money in India, but eliminate the fear that traders will lose the money as SEBI and RBI do not back it. You, as an Indian trader, can get first-hand experience by using demo accounts and tournaments. Trading in Binary Options has witnessed immense growth in the last six years but unfortunately, enthusiastic traders are still waiting on the legalization of Binary Trading in India.
2. The second option is that you can trade in Binary options using brokers that are accepting traders from India. Several brokers such as IQ option, ExpertOptions, Olymp Trade, etc., which act as middlemen, allow Indian traders to make accounts and trade Binary options through them. Being foreign entities, these brokers do not need licenses from SEBI or RBI to conduct their business. They are very welcoming to Indian traders and let them open Binary trading options account with them.
 

Deposit Methods Available in India for Binary Trading

In India because of the restrictions placed on the outflow of the Indian Rupees by the RBI, traders have to specify the reason why they are remitting money out of the country. As such Indian traders are limited to depositing funds using their credit cards or by bank wire transfer.

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What to Do If You Get Involved in a Binary Options Trading Scam in India?

Without any laws or rules to manage binary trading in India, investors who are associated with binary alternatives in India do such at their own risk. There is no legal cure accessible to a broker who engages in a scam of binary trading in India. Many counterfeit web portals scam individuals and wind up taking their information and money. There is also no way to know whether the bets that you place on binary options platforms are real or not. There have been reported cases of manipulation of software to distort prices and payouts. Besides, refusing to return client funds, such platforms because of their geographic locations can easily break all contact with customers. But, still many people regularly fall prey. Why? The answer lies in the advertisements on social media and article placements. These ads will take them to well-designed and professional-looking websites. So, it is an ardent request not to deal with any financial services firms that are not authorized by the Indian authorities. Verify each and every small detail about the entity with the regulator, before taking any investment decision. The mere display of regulatory logos on their websites is not enough.
 

How can a Lawyer help you?

As stated above, there are no laws in India currently that regulate the functioning of binary options trading. This means that if a person has been cheated in the process of trading in binary options there are no specific laws that would provide grievance redressal. This is why it is important to take advice from a lawyer when dealing with or planning to deal in binary options so that you are on the safer side of the edge. A lawyer can identify the existing laws that may prevail in your situation and will be able to help you accordingly in case you ever get stuck while dealing with binary options. You can also ask a lawyer online a free legal question using LawRato's Ask a Free Question service.

Advocate Chikirsha Mohanty

Greater Kailash - 1, Delhi
5 years

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