The complete guide to derivatives trading for NRIs

22 Feb 2022|

1 min read |

by ICICI Securities Team

Introduction:

What are Derivatives?

A derivative is an instrument that derives its value from an underlying asset. Think of derivatives as curd, which is a by-product of milk. Without milk, you wouldn’t have curd. Similarly, without an underlying asset, derivatives cannot exist. Underlying assets can be stocks, a stock market index, commodities, bullion, currency, or anything else.

Derivatives are unique products which can help with managing risks in your investment portfolio. At the same time, they can be used to take advantage of arbitrage or speculative opportunities.

In India, there are essentially two derivatives that people, including NRIs, can invest in. These are:

Futures

Futures are contractual agreements to buy or sell the underlying security on a specified date at a pre-decided price. There are two kinds of futures derivatives available:

Index Futures
Stock Futures

Options

Options are derivative instruments that give a buyer the option but not an obligation to buy or sell a security at a predetermined price on a particular date. Once again, the two types of options available are:

Index Options
Stock Options

Are all NRIs eligible to trade in Derivatives?

Yes. All NRIs can trade in derivatives subject to certain norms as prescribed under the Foreign Exchange Management Act (FEMA) and as mandated by the Reserve Bank of India, Securities and Exchange Board of India, National Stock Exchange, Bombay Stock Exchange and other regulatory bodies from time to time.

Also Read: NRI Demat Account Online Procedures & Charges

What are the derivative instruments offered to NRIs?

NRIs are offered all the above types of derivative instruments, which are:

Index Futures
Stock Futures
Index Options
Stock Options

Are NRIs allowed to use Shares as Margin for Derivatives trading?

No. Shares as a margin facility is not available to NRI customers

How can NRIs trade in Derivatives?

As per regulatory guidelines, NRIs can trade in derivatives only with their NRO account on a non-repatriable basis. NRIs can trade in derivatives through their NON-PINS NRO account.

What are the documents required as proof for derivatives registration?

NRI derivatives form
Verified copies of PAN
Valid passport copy
Copy of documents indicating financial details is given below (any one):
- Copy of Latest Income Tax Return acknowledgment (Latest IT Return)
- Copy of Latest Annual Accounts
- Latest Form 16
- Copy of Latest net worth certificate
- Latest Salary Slip
- Copy of Bank account statement for the previous 6 months (this will be from the date of inward. Also, you don’t have to give a separate copy of bank statement if the same has been given as address proof and meets the 6-months condition).
- Copy of demat account holding statement.

Also Read: NRI Investments in NCDs: Eligibility Rules and Tax Implications

Hence to trade in derivatives market in India, NRIs have to open NRO Non PINS account and submit the above documents. The existing customers of a broking house may need to submit less documents as they already have an account and investors need to check with their respective broker.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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