CFD trading in India can open the door to competitive markets. But first of all, is online CFD permitted when it comes to investing lawfully in India? Until we look at the best trading brokers and sites, we must clarify the rules.
What’s a CFD?
The contract for difference (CFD) is a derivative, which means that you do not have control of the underlying asset. Essentially, two sides agree to swap the difference between the price of the actual commodity and the future value at the end of the deal.
Let’s imagine that you’ve been trading CFDs on Indian stock, like Coal India for example. When the market moves against you, you will pay the broker the difference between the prevailing market price and the valuation of the commodity at the date of the contract. If the price shifted in your favor, the broker will pay you the difference instead.
CFD trading in India is appealing as it enables market diversification. You will deal with stocks and bonds, forex, futures, options, gold, and more. And because online CFDs are a relatively straightforward tool, it’s easy to switch between commodity trading and the Indian stock market index, for example.
The other advantage of CFDs is the potential to trade on leverage. Brokers take equity, known as the market, and then lend you money to take position sizes that would not be possible on your cash flow alone. Not only does this increase the size of possible returns, but it also means that you have capital left to take positions elsewhere. On the other hand, leveraged lending raises risk exposure.
Is CFD Trading Legal In India?
Whether CFD trading in India is legal and permissible is a gray field. The Securities and Exchange Board of India (SEBI) has not yet passed regulations regarding CFDs. As a result, there is no licensing scheme, which means that you can’t find regulated brokerages based in India. Alternatively, there are several unlicensed domains where consumers do not get legal protection.
So, if you want to exchange CFDs on Indian stocks, for example, you should turn to companies based outside India. Indian communities will also need to switch to offshore providers.
How to Choose a Broker for CFD Trading
The good news is that there is a long list of CFD brokers in India. The key considerations when selecting a CFD trading broker include:
- Regulation – Ensure that the broker maintains a license with at least one of the following regulatory authorities: the UK Financial Conduct Authority (FCA), the Malta Financial Services Authority (MFSA), the European Securities and Markets Authority (ESMA), the Cyprus Securities and Exchange Commission (CySEC), the Australian Securities and Investments Commission (ASIC).
- Reputation – It is important not only that the exchange is licensed with a respected body, but also that positive customer reviews are provided.
- Mobile Apps – Online CFD trading in India is commonly done through a mobile app. So, check that the broker’s platform is compatible with your mobile device. Test that you can make deposits and withdrawals from your phone, too.
- Markets – One of the advantages of investing in CFD is a wide range of products. With that in mind, test that you are linked to all the markets you want, such as Indian stock market indices.
- Customer Service – It is crucial to provide fast and simple access to customer care in a language you can understand. You don’t want to jump through hoops when your money’s on the line. Also, if you have businesses located in various time zones, make sure that you have access to help during the time you are involved in trading.
- Fees — Fees usually come in the form of commissions and spreads. Commissions will be paid for each trade, while spreads will include a mark-up for the services of the broker. Also, minor cost differentials will add up if you wrack up huge trading volumes.
What Platforms to Pick
What is the best online platform for CFD trading in India will be decided by the user. That said, the MetaTrader 4 (MT4) desktop and mobile platform is the most widely used. It’s accurate, easy to pick up and makes sophisticated charting and pattern studies. The Traders Workstation (TWS) is another common alternative. Luckily, several brokers are offering quite a few options today. Sign up for a demo account and play around to see which system works for you.
CFD trading in India is allowed, but comprehensive legal security has not been developed as elsewhere. Signing up with an Indian broker is also dangerous. Instead, it is worth considering a broker accredited in another jurisdiction.