For traders and investors based in India, it’s essential to know who regulates forex market in India? The Indian foreign exchange market is one of the most tightly regulated globally, with strict laws governing participation, permissible currency pairs, and trading platforms. Understanding the regulatory framework ensures compliance and protects traders from illegal or risky practices.

The Reserve Bank Of India (RBI): The Apex Regulator

The Reserve Bank of India (RBI) is the chief authority overseeing forex markets in the country. It enforces the Foreign Exchange Management Act (FEMA), 1999, which replaced the earlier FERA. FEMA sets the legal framework for all forex transactions in India, including trading, remittances, and capital account flows.

Key roles of the RBI include:

• Authorising banks and institutions to act as Authorised Dealers (ADs) in foreign exchange.
• Setting rules for currency trading through Indian exchanges.
• Monitoring capital flows and foreign investment limits.
• Regulating outbound remittances under the Liberalised Remittance Scheme (LRS).

SEBI’s Role In Forex Trading

The Securities and Exchange Board of India (SEBI) plays a complementary role by regulating forex derivatives traded on recognised stock exchanges like NSE, BSE, and MCX-SX. SEBI ensures transparency, investor protection, and proper risk management in currency futures and options markets.

SEBI’s responsibilities include:

• Licensing and regulating forex brokers and intermediaries.
• Setting rules for margin requirements and position limits.
• Ensuring proper disclosures and compliance on listed exchanges.

Permissible Forex Trading In India

Forex trading in India is legal only if conducted on Indian exchanges and involves INR as one of the currencies. The permitted pairs are:

• USD/INR
• EUR/INR
• GBP/INR
• JPY/INR

Some cross-currency pairs like EUR/USD, GBP/JPY, and USD/JPY are now allowed on Indian exchanges but must still be traded through SEBI-registered platforms.

What Is Illegal In Indian Forex Trading

• Trading with foreign brokers offering cross-currency pairs not involving INR.
• Using unregulated mobile apps or offshore platforms.
• Participating in binary options or high-leverage speculative forex schemes.

Violating FEMA regulations can result in heavy penalties and legal action from the RBI.

Why India Has Strict Forex Regulations

India maintains capital controls to safeguard its foreign exchange reserves and control the rupee’s volatility. These regulations help:

• Protect retail investors from unregulated markets.
• Prevent unauthorised capital flight.
• Support macroeconomic stability and balance of payments.

Conclusion

If you’re asking who regulates forex market in India?, the answer is twofold: the RBI handles the legal and monetary aspects under FEMA, while SEBI oversees currency derivatives trading on Indian exchanges. While opportunities in the Indian forex market are growing, it’s critical to operate within the boundaries of the law.

To trade forex legally and profitably in India, while understanding the regulatory nuances, join our in-depth Trading Courses at Traders MBA and become an informed, compliant trader.