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NRI Trading in Derivatives (Futures and Options Trading) in India

Published on Saturday, June 29, 2019 by Team | Modified on Thursday, May 13, 2021

NRI Trading in Derivatives (Futures and Options Trading) in India

NRI Trading in derivatives in India offers a great opportunity for hedging, speculation, and margin trading. Derivatives are financial instruments like future contracts and options (F&O) whose value is derived from underlying assets. The derivatives trading account for over 95% of the daily turnover in India Stock Market.

Many Non-resident Indians (NRIs) show interest in trading in derivatives but the complexity in regulations makes it challenging. It's important for NRIs to understand the NRI trading rules and NRI trading restrictions for derivative trading in India Stock Exchanges. NRIs including NRI, PIO & OCI card holders are permitted to trade in derivatives through special set of rules. In this article, we try to explain the basics of NRI derivatives trading, prerequisites for trading in Futures & Options and the tax implications.

NRI Derivatives Trading

A derivative is a financial contract or an agreement that is derived from some other assets (called underlying) like stocks, index, commodities, and currencies, etc. The value or price of a derivative depends on the price or value of its underlying.

To know more detail about derivatives trading in India, visit the following articles:

All NRIs are permitted to trade in F&O's in India. The major difference between the way you trade as a resident Indian and an NRI is that for residents, all the derivatives trades are settled by the broker but for an NRI client the F&O trades are settled by the Custodian. In some cases, a broker who is a clearing member can offer to clear and settle the F&O trades for an NRI. In such a scenario, the broker in the capacity of a clearing member would apply for CP code. You need to check with your respective broker for the services offered by them.

NRI Custodial Participant in India

Key Facts about CP Code:

  • For an NRI, the CP code is required for trading in derivatives.
  • One and only one CP code is allowed per NRI investor at a time.
  • The broker usually has a tie-up with 3rd party Custodian i.e. Zerodha has ORBIS as a custodian.
  • All funds for trading in F&O remains with the custodian.
  • Broker updates the trading limit (margin) for an NRI customer as per the detail provided by the custodian.
  • Broker does end-of-the-day settlement with the custodian for all transactions by the client.
  • Custodian charges a clearing fee of Rs 200 to Rs 300 per crore over and above the brokerage charged by the broker.
  • The Custodial may ask for minimum Rs 25 Lakhs of deposit or portfolio.

An NRI customer has to apply for a Custodial Participant code (CP code) with a Custodian. The CP code is linked to the NRI trading account and passed by the broker to the exchange for every trade. It is also used by the clearing member to clear the trades through Custodian.

A custodian is a financial service provider registered with the SEBI and a member of the Clearing Corporation of India. They help the customers in getting the CP code and later clear the F&O trades at the exchange on the behalf of the customer.

All the funds for trading in F&O for NRIs are kept with the custodian (unlike in a resident account where funds are kept with the broker). The broker shares the contact note with the custodian to get the payment at the end of the trading day.

This is similar to how the funds for NRI Delivery Trading remain with the bank (and not with the broker) and given to the broker once they share the contact note with the bank at the end of the trading day.

Note: When you open a custodial account, the company offering custodial services usually demands at least Rs 25 lakhs custody portfolio size. This including cash, stocks or any other security that you deposit with the custodian.

NRI Trading Restrictions, Rules and Regulations

NRI Futures Trading and NRI Options Trading are permitted by SEBI, the market regulator, through a Custodian via an NRO bank account. But there are a number of rules and regulations by SEBI, RBI and Stock Exchanges. Here are a few key restrictions:

  • The trading can only be done out of INR funds held in India.
  • An NRI can trade in F&O using NRO bank account only.
  • An NRI cannot trade in F&O using NRE account.
  • The investments are not eligible for repatriation benefits e. it cannot be moved to a foreign bank account without the permission of the RBI. It can, however, be used in India.

For detail about rules and regulations by SEBI, RBI and Exchange, visit below links:

NRI Derivatives Trading Account Opening

For NRI Investment in Derivatives(F&O) in India, an NRI needs an NRO Bank Account, a CP Code, a Trading account, and a Demat account.

#Account TypeOpened WithMandatory for F&O trading?
1 NRO Saving Bank Account (Non-PIS) Bank Yes
2 Custodial Account Custodial Yes
3 NRI Trading Account Broker Yes
4 Demat Account Broker Yes*
5 PIS Bank Account Bank No

* Demat Account is required due to introduction of mandatory physical settlement of F&O stocks on expiry

A PIS account is not required for trading in Equity Derivatives (F&O) since the funds are settled through the Custodial. An NRI can use an NRO saving bank account to trade in F&O.

  1. NRO Bank Account

    A Non-Resident Ordinary (NRO) is a saving account needed to be opened by an NRI to manage the income earned in India i.e. rent, dividend, pension, sale of property purchased before becoming an NRI, etc. Some of the key features of the NRO account are:

    1. NON-PIS NRO (Account under Non Repairable basis) is required for NRI F&O Trading.
    2. The account can be opened in single as well as joint with an Indian or another NRI.
    3. Money can be deposited in any currency but can only be withdrawn in Indian currency.
    4. The principal amount in this account can be repatriated within the set limits set by RBI.
    5. Interest amount earned is taxable at 30%
    6. TDS is deducted on every transaction.
    7. NRO account can be used for investing in Mutual Funds, Bonds, and IPOs in India.

    Banks like Axis Bank, ICICI Bank, HDFC, etc., offer NRO account services in India.

    NRE vs NRO Account in India for NRI

  2. Custodial Account

    Custodial holds the money and settle the F&O trades for NRI customers. An NRI has to open a Custodial Account with a SEBI registered Custodial.

    The broker whom with you are planning to open the trading account has a partnership with one of the Custodial. You have to open an account with them before you open the trading account.

  3. Trading Account

    It is an account that is required to access stock exchanges and trade in Futures and Options along with other securities like stocks, IPOs, etc. Your NRO account, Demat account, and the Trading account are linked to each other to facilitate the transfer of funds and securities.

    NRIs can open a trading account with any share broker in India. Most brokers like Zerodha, Axis Direct, ShareKhan, etc., offer trading account services.

    Note that most banks offer 3-in-1 NRI Investment account which is a combination for NRI Bank Account, NRI Trading Account and a Demat Account. The 3 in 1 account offers seamless transaction between there 3 accounts and make the stock investment easy for the investor.

  4. Demat Account

    An NRI demat account is a must for stock market investment in India for both resident and NRIs. It is an online account for holding stocks, mutual funds, NCDs, etc. in the electronic format. The demat account is a secure way to hold stocks and mutual funds. It also makes online trading quick and easy.

    In the case of NRIs, the demat account is linked with their NRO savings account. All the earnings from their investments in securities like Stock dividends, Mutual Funds dividends, etc., are directly credited to the NRO account.

    NRIs can open a demat account with any stock broker in India. Most brokers like Zerodha, ICICI Direct, Axis Direct, etc., offer demat account services.

    Note that the Demat account is made mandatory even if you are planning to trade only in derivatives since the physical settlement of stock contracts was introduced. Due to physical settlement, an investor may either have to take or receive delivery of shares for certain stock contracts on expiry.

Once all accounts are set up and linked correctly, trading in F&O is similar to how the trading is done by the resident Indians.

Position Limits for NRI

Type of ContractIndex Futures and Index OptionsStock Futures and Stock Options

Position Limit

If the combined position of all index-based derivative contracts is 15% or more of the open interest*, there is a need for disclosure of such requirement to the exchange.

The gross open position across all derivative contracts on a particular underlying stock should not exceed higher of the below:

  1. 1% of #free float market capitalization in terms of the number of shares.
  2. 5% of the open interest in the derivative contract on a particular underlying.

*Open interest is the number of open outstanding contracts across all market participants. This is calculated at the end of each day and is made available on the NSE website.

# Free float capitalization refers to the number of shares that are freely available to the public for trading which excludes promoter holding.

In case the open positions exceed the above limits, there is a penalty levied by the exchange on the clearing member. In case the index contract limit exceeds 15% limit and the disclosure is made as required then there is no penalty levied.

The clearing members keep a check on the above position limits via their robust risk management system and intimate to clients on a timely basis in case the client position is nearing the limits.

NRI Derivatives Trading Tax

Trading income from F&O trades in India is considered as business income, and taxed according to the Income-tax (IT) slabs in India.

NRI customers are taxed (income tax) at the rate of 30.90% (Tax 30% + Service Charges 3%) for trading in derivatives (as of March 2019). The taxes are charged on the net profit for a calendar month.

The income tax is in addition to other transactional taxes charged while trading in derivatives. The below table provides the detail of taxes paid by the NRIs on trading futures and options in India.

Tax on NRI Derivative Trading

TaxFutures MarketOption Market

Securities Transaction Tax (STT)

0.1% of the transaction value (On Sell)

Sell : 0.05% on Premium,

Exercise : 0.125% on Settlement Price

Stamp Duty

0.002% (Rs 200 per crore) on buy-side

0.003% (Rs 300 per crore) on buy-side

SEBI Turnover Tax

0.0001% on turnover + GST 18%

0.0001% on turnover + GST 18%

Income Tax (on net profit)

30.9% (30% Tax + 3% service charges)

30.9% (30% Tax + 3% service charges)

The term net profit for Futures Trading is considered as:

  • Profit on squared off or expired Futures contracts.
  • Mark to market profit on outstanding positions at the end of each day.

The term profit for Options trading is considered as:

  • Premium received on selling an option contract is profit.
  • Premium paid while buying an option is a loss.
  • In case of exercising of an option, the difference between the settlement price and the strike price is Profit.
  • On assignment, the difference between the settlement price and the strike price is a loss.
  • Profit on squaring off of a contract is considered as a profit.

NRI Trading Challenges

  • For F&O trading, a custodial account is required with at least Rs 25 lakhs custody portfolio size. The amount varies by the custodian. The funds could be in cash or collaterals.
  • The net profit is taxed at 30% upfront. There is no exception or slabs.
  • NRI customers pay a high brokerage in comparison to the residents.
  • As NRI F&O trading require NRO Bank Account, the money can be deposited in any currency but can only be withdrawn in Indian currency.
  • The principal amount in this account can be repatriated upto $1 million but the profits made cannot.


NRIs are allowed to trading in derivatives but with a set of restrictions, high entry barriers, high brokerage and taxes. F&O offers an opportunity to hedge and trade in highly leveraged financial instruments. With effective use, F&O trading can be highly profitable for NRI investors.


ProStocks Non-PIS NRO Trading


Frequently Asked Questions

  1. 1. Can an NRI trade in F&O in India?

    Yes, NRIs can trade in derivatives in India. This includes Person of Indian Origin (PIO) and Overseas Citizen of India (OCI) cardholders.

    However, there are some prerequisites and restrictions for NRI trading in futures and options (F&O):

    • It requires an NRO saving bank account
    • It requires a Custodial account.
    • The profits are taxed at 30% by the income tax department.
    • The profits earned cannot be repatriated.
    • The custodial account provider may ask for a minimum of 25 lakhs in the account.
    • Brokers charge higher brokerage because of complexity and tough compliance.


  2. 2. Can an NRI use NRE account to trade in derivatives instead of NRO?

    As per RBI/SEBI regulations, an NRI needs to open a Non-Resident Ordinary Account (NRO) to trade in the derivatives segment.

    An NRI needs a NON-PIS NRO Account to trade in F&O.  

    • The money in NRO account remains in Indian Rupee which makes it easy for clearing the daily trades.
    • The profits earned by the derivatives trading cannot be repatriated.
    • The principal amount can be repatriated.
    • The net profit is taxed at 30% and deducted as TDS every month.


  3. 3. Which derivatives NRIs can trade in India?

    NRIs are permitted to trade in equity and currency derivative instruments in India. However, NRIs are not allowed to trade in commodity derivatives.

    There are two kinds of equity derivative instruments in India. The NRIs are allowed to trade in both of them.


    1. Index Futures
    2. Stock Futures


    1. Index Options
    2. Stock Options

    In Currency Derivatives, there are four permitted currency pairs for NRI investments viz. USD-INR, GBP-INR, JPY-INR, EUR-INR.


  4. 4. Which bank account is required by NRIs for trading in Derivatives?

    As per regulatory guidelines, NRIs can trade in Derivatives only through their NON-PIS account under Non Repairable basis i.e NRO Non-PIS account.

    An NRI cannot use an NRE or PIS-NRO account for trading in Futures & Options (F&O) in India.


  5. 5. Can NRI do forex trading?

    NRIs are permitted to do forex trading in India by RBI without any restrictions.

    NRIs are prone to currency risk hence they are allowed to hedge their Rupee currency risk through OTC transactions. An NRI is required to open an account with an authorised dealer bank (AD Bank) who has the license from RBI to buy and sell foreign currencies to deal in the forex market.


  6. 6. Can NRI trade in F&O Intraday?

    NRIs can do intraday trading in Equity and F&O using the NRO Non-PIS trading account.

    ProStocks, a leading stock broker for NRI trading in India offers NRO Non-PIS account. This account can be opened online with scanned docuemnts in a day. It requires an NRO Non-PIS Bank Account.


    1. Only a few brokers offer intraday trading to NRI customsers in India. ProStocks is the leading broker offering this facility.
    2. India's largest stock broker like Zerodha, ICICI Direct, Upstox and Sharekhan doesn't offer this facility.


  7. 7. What exposure is provided to NRI for selling index options?

    No exposure or leverage is provided to NRIs for selling index options.

    The exchange levies exposure margin along with margins as per the requirements while trading index options.


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