Here is what I know about this subject.
- Indian resident can maintain foreign currency bank accounts and can legally transfer up to USD 25,000 every year per adult.
- There are 2-3 options to trade US stocks in India itself. ICICIDirect and Interactive Brokers for instance. But using an Indian firm means that you pay ridiculously high commissions. ICICI charges 55 bps for Indian stocks, so the 75 bps charge for US stocks seems cheap!
- It really depends on what you want. Do you want an account that allows you to trade literally anything, or do you just want an account where you can trade only the popular instruments.
- If you want to trade everything, you can open an account with ETrade HK. The only thing is, keep some buffer in your account to handle the delays in transferring money. Still commissions are high, plus you lose a lot in the commissions as you roll your contracts each month.
- If you are OK with trading just the popular commodities, stocks and indices, there is a very interesting option available - there is a product called CFD (Contract For Difference). The way this works is that it behaves like a stock, but is a derivative in reality. So you don't get much leverage - just 5:1, but you get extremely low commissions, and you don't have to roll the product each month. You can trade crude, gold, silver, base metals, major indices, major currencies, and also the popular stocks like AAPL, GOOG, MSFT, etc.
- this is completely legal, and you can trade online. There are several brokers offering this product. The major ones are FXCM, and FXPRO. From their names it is obvious - these guys started as FX players, and use the exact same platform for other instruments as well.
- from a tax perspective, Indian Income Tax classifies all Futures and Options trading as speculative activity, so you have to pay 40% tax on profits. With CFDs, the actual instrument is more like a stock - so you get advantage of LTCG, etc. In any case, you pay tax only at your marginal rate, which is definitely lower than 40%.
- Another interesting point. It is theoretically possible for anyone in the world, including from India, to open an account with any US broker. However in practice, the sales guy is not aware of this, so they insist on US Social Security Number. You don't need to provide this - you can either provide a W8-BEN - certifying Foreign Status, or just pay 28% withholding tax. But unfortunately, we have to literally fight with the sales guy to make them understand this! Fidelity and ETrade allow Indians to open accounts - but only for stocks. For futures they are worried about margin calls etc, so don't allow yet.
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