Attention! - Forex trading is illegal in India!

[Newbie Day-Trader]

Its not so easy to make INR a free-floating currency.....

We are not the darling of the world economy that they will have great demand for our INR

INR barely can manage to compete...of course corruption is a BIG issue behind that !

But given the current scenario...corruption et al....yet the solution definitely does NOT lie in opening up Forex trading for the lay persons in India.

Truth is staring you in the face but......

Why isn't their more demand for INR??? BECAUSE it is a controlled currency susceptible to devaluation, so obviously less people around world aren't going to want to accept & hold INR or INR-denominated assets, because they would fear devaluations & difficulty in their investment out.

And it's not just about demand because price of anything is determined by supply AND demand! Getting back to example of onions, when there's a shortage of onions prices go up, not necessarily because people are demanding more onions but because their supply has decreased.

Same concept is true for value of currencies! USD undoubtedly has more demand than AUD for example but AUD has nearly doubled in value against not only USD but also against EUR & GBP; there's nothing magical about it other than the fact that current & future expected supply of these currencies; obviously all governments issue more money & devalue their currency (because it's a profitable business!) but Australia hasn't been as insistent upon devaluating AUD as US, UK & Eurozone, all of which have massive economic & fiscal problems while is in a slightly better position, therefore they are more likely to devalue at a faster pace than AUD.

Similar is the story of NZD too & some other currencies. Even the rise of gold for years is fuelled by devaluation of the USD, because wiser big investors realized that supply of gold increases slowly compared to supply of USD has been & is expected to increase, other currencies are also vulnerable to it & that's why they have been diversifying as well as some better alternatives to USD, EUR.

The thing is that it's the banks that quote prices on forex markets & they engage in forex out of necessity & they consider economic & fiscal issues very closely because they have a huge impact current & future supply of currencies.

 

[Newbie Day-Trader]

I agree with you. The traders fail to see the macro economic effects of devaluation of the INR on common people.

Well, if you are going to talk about macro-economics then you must understand that what we call "market" isn't just a place where things are exchanged but it's where PRICE-DISCOVERY occurs & only when something is freely allowed to be traded; that's why commodity-exchanges exist so that prices are liquid & optimal, same is true for currency-market, the price/value of currencies can't be liquid & optimal unless the currency freely traded; in fact, a currency is likely to be UNDERVALUED due to less liquidity & unwillingness of banks & others to hold it internationally.

Dollar with become ridiculously expensive. Imports and fuel price will shoot up and as a result inflation will also rise very high. Exports will result in producers sending good quality goods and food products out of the nation and selling left overs to residents. Not a good scenario .

So you think Indians are idiots & they'll mostly lose money in forex??? (
I believe Indians are equal with others in the world, be it forex-trading or anything else! So some will lose money but others will win, same as any other country with freely traded currency so the NET effect of forex-trading on INR's value will be negligible but INR will definitely be more liquid & realize an optimal value.

Moreover, just to point it out, if Indians sell more goods, services & labor to other countries then that will increase demand for INR & drive its value back up until it becomes high enough that other countries buy less from India & Indians are able to buy cheaply from other countries; in fact, such short-term fluctuations in currencies are not only natural but also desirable, it ensures optimum allocation of economic resources around the world.

And yes corruption does make a huge difference. No comments needed on that.

Currency-controls facilitate a form of corruption too!
There are no magnanimous intentions behind it. With currency-controls, governments try to (yet fail at) issue more money while hoping that lack of a liquid market will hide its activity (while pretending it's for the good of the people) but obviously, it doesn't work.

Back when dollar was falling, it fell to 39 INR & RBI was going long USDINR (buying USD/ selling INR) to devalue INR against USD! Now, that USD has risen, it's making a good profit by selling it USD!
If markets were allowed function freely, then may be USDINR would have fallen to mid or low 30s, oil & other imports would have been more cheaper back then & even now, this recent surge of USD may have been contained to about 50 or so, which again would mean price of oil & other imports would have been lower than it is right now!

Government made a nice profit (I'm sure politicians will love spending that money!) while people have been & continue to suffer with prices much higher than they would have been under a freer system.

Can't let all of the above happen just because a handful of guys want to trade a derivative.

Just to point out, the issue here isn't "derivatives" but it's spot-forex, they are different things; trading USDINR is "illegal" but trading USDINR's derivative on NSE, MCX is perfectly legal.

 

[supaTrade]

You write like a college kid (fresher) with lot of theoretical knowledge. Get real buddy!

You are talking about only the positive side (just like a new investor who sees only high profit in his trading strategies) but each thing has negatives too.

And be a bit broad minded. Think about the millions of common Indians suffering if the INR does fall very low. You should think about all sides when you talk.

Lastly Forex isn't the only market. If you have trading skills, you can trade equities quite well.

 

[Newbie Day-Trader]

For ones who know how to trade, its no problem whether its Forex or stocks !

And who will decide who knows how to trade & who doesn't? Politicians or bureaucrats? Shouldn't that FREEDOM, that choice, be left to each person to decide?

But to allow lay persons to play Forex and lose money heavily in a Forex environment legally is being really stupid for any country in a hostile situation as ours !

So Forex currently is being played by ones who know what they are getting into.....:thumb:

Again, you also seem to have a very low opinion of Indians as you think that Indians will lose more than those in other countries, which is unlikely as Indians would probably have the same win/loss ratios as other countries so net effect would be negligible.

Hardly the case, in fact, a lot of traders that are trading may not be that good since a lot underinformed are being scammed & I'm sure you are familiar with RBI warnings about this; this is because not a lot people know about forex & those who do keep quiet because of its "illegality" & therefore there's less of information & higher probability of uninformed people trading forex.
Besides, apart from those who lose, the bigger winners might not even bring back most of their money due risks involed, if a broker refuses to pay then getting recourse is difficult because it's "illegal" anyway! So more INRs go out than come in, which doesn't help your endevour of propping up INR anyway

Moreover, just like stock-market isn't just there to gamble but to facilitate a capital market to help companies raise capital, just like commodities market isn't there to gamble but to facilitate hedging for producers & consumers & for efficient PRICE-DISCOVERY, similarly, a forex market is there to allow banks to hedge themselves as well as to facilitate liquidity & efficient PRICE-DISCOVERY of currecies, without which a currency will less liquid & undervalued, not to mention corruption (as explained in reply to Supatrade).

 

[Newbie Day-Trader]

You write like a college kid (fresher) with lot of theoretical knowledge. Get real buddy!

You are talking about only the positive side (just like a new investor who sees only high profit in his trading strategies) but each thing has negatives too.

And be a bit broad minded. Think about the millions of common Indians suffering if the INR does fall very low. You should think about all sides when you talk.

Lastly Forex isn't the only market. If you have trading skills, you can trade equities quite well.

Ad hominem! A perfect way out for the uninformed!

You didn't provide any counterpoints or anything, you just heard something somewhere from someone & accepted it as fact without researching actual facts!
And it is such a mentality that allows governments to continuously exploit people through inflation & keep them poor & destitute as has occurred till 90s when government was "protecting" people from foreign products & companies & with fully locked currency & a bureaucratic web of red-tape, it was when markets opened themselves up that India started growing & millions were able to raise their living-standards!

And it's not about forex or equities or whatever; it's about FREEDOM, something you probably don't care much about, but then that's how most people are & that's why freedom is so elusive most of the time!

And, you call me a "fresher"........while you don't even know the difference between spot-forex & forex-derivatives........enough said!

 

[Newbie Day-Trader]

I think the issue is loosing foreign exchange , which is valuable. the investors money no one cares about any way..:rofl::rofl:

The issue is, why is India so dependent on other countries' currencies aka foreign exchange like a begger dependent on alms? It's because others usually don't accept INR when Indians buy something from them, they demand some other respectable currency? Why? It's because they don't trust a controlled currency like INR as it is more susceptible to devaluation.
If INR was a free-float then others will be more willing to trust, accept & hold it & thereby help strengthen it, so long as government keeps debt & moneysupply in control.

 

[supaTrade]

Sorry dude! My bad. You are a great person. I think they should make you the finance minster. You will take the country to great heights.

Ad hominem! A perfect way out for the uninformed!

You didn't provide any counterpoints or anything, you just heard something somewhere from someone & accepted it as fact without researching actual facts!
And it is such a mentality that allows governments to continuously exploit people through inflation & keep them poor & destitute as has occurred till 90s when government was "protecting" people from foreign products & companies & with fully locked currency & a bureaucratic web of red-tape, it was when markets opened themselves up that India started growing & millions were able to raise their living-standards!

And it's not about forex or equities or whatever; it's about FREEDOM, something you probably don't care much about, but then that's how most people are & that's why freedom is so elusive most of the time!

And, you call me a "fresher"........while you don't even know the difference between spot-forex & forex-derivatives........enough said!

 

[Anarchist]

The issue is, why is India so dependent on other countries' currencies aka foreign exchange like a begger dependent on alms? It's because others usually don't accept INR when Indians buy something from them, they demand some other respectable currency? Why? It's because they don't trust a controlled currency like INR as it is more susceptible to devaluation.
If INR was a free-float then others will be more willing to trust, accept & hold it & thereby help strengthen it, so long as government keeps debt & moneysupply in control.

Hmm .. easier said than done..:rofl:

 

[Newbie Day-Trader]

Sorry dude! My bad. You are a great person. I think they should make you the finance minster. You will take the country to great heights.

More ad hominem! So typical of the uninformed!

It was economically uninformed people like you who had said back in the 90s that deregulation & privatization will kill India as foreign companies & products outcompete Indian ones & private businesses will raise prices so much that poverty will increase, etc etc but the opposite has occurred, foreign competition raised local standards & improved resource-allocation within the economy & increased availability of real wealth aka goods & services, & people's living standards.
It was people like you believed that "evil speculators" & not supply & demand that causes commodity-prices to rise & because of such people, India didn't have a functioning commodity market for hedging & price-discovery; now that it's been allowed to work, it's one of the largest markets in the world.
Index & stock futures were restricted back then, now India's stock-futures market is one the largest.

And now the same old "protective" rhetoric being thrown around against floating INR, without an iota of understanding of basic economics!

Don't try to think for yourself, keep believing the government because as we know, governments are always full of honest & trustworthy people :thumb:

 

[Newbie Day-Trader]

Hmm .. easier said than done..:rofl:

I said that is needed to STRENGTHEN the INR, it isn't necessarily needed to float it; whether a currency is free-float or controlled, if supply increases & is expected to increase then it will lose value as others will only be willing pay less for it.

If you study monetary history of India, you'll realize that INR was a locked currency, meaning there would be fixed rate of exchange, for example 1 GBP = 1 INR, etc & then it would be traded only at that rate. But as government issued more money & supply increased as they usually do, other countries start demanding more INR because they become worth less than they were & then government has to reset the rate to 1 GBP = 5 INR or whatever the market demands it should be.
INR sufferred many such sudden devaluations since Independence, in 1947, 1 GBP = 1 INR, YES, that was the value of INR then but due to continuous issuance of more INRs by government, now you can see where GBPINR is, & bear in mind, British government has devalued GBP along the way as well, which puts INR's devaluation at astonishing levels.

It's been an enormous wealth-transfer from the people to the government, in the name of "protecting" them; so is it any wonder that India has had such a high incidence of poverty for so long!

The point is that devaluation of a currency has to do its increasing supply; as supply increases, it will lose value, whether it's locked or free-float!

The currency prices are quoted by banks, to hedge themselves against risk they expose themselves to in the process of international trade; they qoute higher price for a currency with lower supply against a currency with higher supply because currency with lower supply will retain more "purchasing-power" & that's why it's more desirable & hence sold only at a higher rate.

Why were they willing to quote ~39 on USDINR back then but quoting ~55 now? Well, as I've said, RBI was long USDINR (buying USD / selling INR) to prevent it from rising & now they are selling USD at a higher rate, made a nice profit for government but people have had to pay higher prices, an invisible tax on everyone saving their purchasing-power in INR.
If markets were allowed to work freely then USDINR could have fallen to mid or even low 30s, people would have enjoyed cheaper prices on oil & other stuff & even the recent surge of USD may have contained under 50 & would have experienced less inflation!

As I have said, if there's an onion shortage expected then its price will increase while if there's a glut then prices will fall; same concept applies to currencies, if supply of currency increases & is expected to increase compared with another currency then a devaluation is inevitable, this is the fundamental concept of supply & demand that guides banks' quotes.

Moreover, a controlled currency will always be quoted less than its fair value in order to compensate for the risk that the issuing government may devalue & even lock the currency & then banks or anyone holding of that currency will suffer losses in their purchasing-power & it will be more difficult to get rid of it; so INR will definitely be quoted better if it was a free-float because then there's more liquidity & people will have the reassuarance that they won't be stuck with it in case they want to get rid of it quickly.