Prop Trading in India

Prop trading is legal in India as long as it adheres to existing regulatory frameworks. There’s no law prohibiting prop trading, but it must comply with existing rules, including fee transparency and risk disclosures from prop firms. Prop trading platforms also need to have an internal risk management system and maintain proper trading records.

Trading in India is regulated by two institutions: the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). These institutions have frameworks governing prop trading.

SEBI’s frameworks cover registration requirements and risk management guidelines. It requires prop firms to evaluate traders and have risk management mechanisms, such as stop-loss orders and a leverage limit.

The RBI oversees India’s broader financial system and may issue specific regulations from time to time, such as those related to foreign exchange and risk management.

You may engage in foreign exchange transactions as a prop trader, such as when paying challenge fees or receiving your payout. The Reserve Bank of India (RBI) has firm foreign exchange regulations, which are the Liberalized Remittance Scheme (LRS) and the Foreign Exchange Management Act (FEMA).

Under the LRS, Indians are permitted to remit up to $250,000 annually for various purposes, including payment for services. Challenge fees paid to prop firms fall under service payments, so there’s a clear legal channel for traders to transact with prop firms.

FEMA covers general requirements for banks facilitating foreign exchange transactions, including documentation and taxation. Hence, as an Indian prop trader, your bank may request specific documents when transacting with a prop firm. It depends on the amount and type of your transaction.

Income earned from prop trading is considered taxable in India, and traders ought to comply with local taxation requirements.

As an Indian prop trader, your payouts are classified as capital gains income and taxed based on the amount. Hence, you should maintain proper payout records, file timely income tax returns, and comply with audit requirements.

Prop trading is buzzing in India, thanks to a growing economy and capital markets that have spurred many traders to capitalize on opportunities. In 2024, India became the world’s largest options market by trading volume.

In an Indian context, prop trading remains the same as it is in other countries. It involves skilled traders receiving capital from a prop firm to execute their trades. Any profits are shared between the trader and their firm, with the trader keeping the majority. You need to pass a challenge to qualify as a prop trader – this challenge demonstrates your trading skills and ability to comply with the firm’s rules.

Many traders have well-reasoned trading strategies, but they lack sufficient capital to execute these strategies effectively. Even if they have enough capital, they might not want to bear the risks alone. Prop trading solves this problem by connecting skilled traders to adequate capital from prop firms.

To become a prop trader, you have to pass your prop firm’s evaluation stages. The first stage is a demo challenge with a profit target and precise rules, including a maximum leverage and maximum daily loss. You need to meet this profit target while complying with the rules. On Hash Hedge, the challenge centers on trading cryptocurrencies.

Following the initial demo challenge, the second stage presents another trading challenge, but with a lower profit target and specific trading rules. You also need to meet this profit target while adhering to the rules.

After passing the second challenge, you can proceed to the funding stage to begin trading. Rules still apply, but this stage has no specific profit target. You can make as much profit as possible while adhering to the rules. Any profits are split between you and your prop firm. At Hash Hedge, traders keep 80% of the profits they generate.

Because prop trading is relatively new in India, many still hold common misconceptions about it. Let’s explore these misconceptions and why they aren’t true.

Prop trading is a legitimate business model, but, like all other industries, it has its bad apples. You need to conduct extensive research when selecting a prop firm, ensuring you don’t work with malicious prop firms that only want challenge fees instead of funding traders and earning profits from their trading strategies. Below, let’s explore the key criteria for choosing a prop firm.

Legitimate prop firms are incorporated entities and have websites with precise information about their operations. They are transparent about the process and rules traders must follow to obtain capital.

Prop firms can allow you to pay challenge fees in different currencies, including the U.S. dollar or the equivalent in cryptocurrency. The best prop firms have responsive support teams that answer your questions about prop trading.

If you find a promising prop firm, you can verify its legitimacy by checking reviews from previous customers. Hearing directly from customers helps you accurately assess a prop firm’s pros and cons.

Along with reviews, you can check the prop firm’s payout testimonials, which are usually displayed on its website. Likewise, you can check its refund policy regarding challenge fees and its incorporation, as legitimate prop firms have precise policies and registration details.

Prop trading isn’t overly complicated to start, provided you follow the recommended steps. The steps to begin prop trading in India are as follows:

Your prop trading journey begins with a challenge (exam) provided by your prop firm. The process may vary, but it primarily involves demonstrating your trading strategies and adhering to strict trading rules.

Research your prop firm’s challenge process and ensure you understand it before beginning the challenge. Verify the restrictions, including your maximum leverage, drawdown, and daily loss limit. These limits exist to prevent you from taking excessive risks with the prop firm’s capital, so compliance is essential.

Before kickstarting the challenge, you may be required to pay a challenge fee to your prop firm. You can pay with local or foreign currency or with cryptocurrency, depending on your prop firm.

Cryptocurrencies, debit and credit cards, bank transfers, peer-to-peer apps, and payment processors are common mediums for paying prop fees. Challenge fees are classified as payments to international service providers, making them compliant with the Indian Foreign Exchange Management Act (FEMA).

After paying the challenge fee, you can begin implementing your trading strategies to meet the profit target. Remember that complying with your firm’s trading rules is paramount– failure to do so usually results in account termination. Monitor your results and tweak your trading strategies to always stay within your firm’s limits.

Your prop trading journey begins with a demo trading challenge to prove your skills and discipline. This demo challenge is necessary for prop firms to evaluate traders and select the best ones to invest in.

After the initial demo challenge, you’ll face another challenge to verify your long-term skills and discipline. Passing this verification challenge certifies you as an outstanding trader who can be trusted with real capital. Then, you can begin trading and scaling up your strategy to maximize profits.

Paying challenge fees, withdrawing your profit payouts, and currency exchange are crucial considerations for prop traders. Let’s explore how you can navigate them.

Most prop firms have straightforward methods for paying challenge fees as an Indian user. For example, you can pay with various cryptocurrencies, such as USDT and BTC. After payment confirmation, you’ll then begin the trading challenge.

Wire transfer is the most common and convenient method to receive profit payouts from a prop firm. You'll provide your banking details, and the prop firm will send the money in Indian rupees or a foreign currency. Some prop firms also support withdrawals via crypto wallets.

As an Indian prop trader, you can open a foreign currency account to receive payouts in dollars, euros, or other currencies. Regulations apply, such as declaring earned profits on your tax return.

The Foreign Exchange Management Act (FEMA) and the Liberalized Remittance Scheme (LRS) are the main laws governing foreign exchange transactions for Indians. These laws restrict the amount and for which purposes Indian individuals can transact in foreign currencies.

When paying challenge fees to prop firms or receiving your payouts, compliance with the above laws is necessary. Fortunately, it isn’t hard to comply with them when working with a legitimate prop firm. Prop trading transactions are legal under these laws as long as they’re disclosed appropriately.

Hash Hedge is one of the best prop firms you can work with. It allows you to trade 200+ crypto assets and profit from the numerous fluctuations in the cryptocurrency markets. Successful traders keep 80% of their profits and can withdraw their earnings to any digital wallet. Choose Hash Hedge to begin your prop trading journey today.