The Forex market in Sri Lanka has no regulation since trading Forex is illegal in the country. There is an institution that oversees the financial markets of Sri Lanka – the Central Bank of Sri Lanka, or CBSL. However, CBSL is not concerned with Forex trading, and there is no separate independent entity monitoring the securities and exchange markets. Therefore, CBSL administers all financial regulations applicable to Sri Lankan brokers and passes laws that prohibit trading foreign exchange currency pairs for Sri Lankan residents. Therefore, those Sri Lankans who want to join the Forex trading community have to bear in mind that it is considered an illegal activity in the country.
Since it is impossible for Sri Lanka to produce local brokerage companies, due to the legal framework existing in the country, most Forex traders rely on international brokers with regulations from the regional market authorities. There are numerous market regulators in Asia that license the brokers operating in Sri Lanka including the Securities and Futures Commission (SFC) in Hong Kong, the Securities and Exchange Board of India (SEBI), the Financial Services Agency of Japan (FSA), and the Monetary Authority of Singapore (MAS).
The domestic currency Sri Lankan rupee, LKR, on the other hand, is not to be found among the tradable Forex assets. However, Sri Lankan Forex traders often trade on Singapore Dollars which is one of the most common Forex assets found within the portfolios of best Forex brokers Sri Lanka.
Furthermore, since trading Forex in Sri Lanka is not legal the traders cannot file their Forex earnings for taxation purposes. Therefore, we can say that trading Forex cannot be taxed in the country. Those who decide to trade Forex need to keep in mind to avoid Forex transactions going through local banks. Fortunately, the residents of Sri Lanka can access numerous online payment methods like Skrill, Neteller, and PayPal to deposit and withdraw their funds with the brokers. Even though the brokers do not charge for deposits and withdrawals, the payment solution providers might demand a transaction cost depending on how quickly you expect your transaction to be processed.
As we mentioned, you cannot find legally approved or accredited brokerage companies in Sri Lanka. However, you can definitely seek the brokers that are regulated by regional financial authorities and operate with Sri Lankan traders. Most of the top Forex brokers in Sri Lanka will be authorized by either SEBI, FSA, MAS, or SFC, which are the main regulatory bodies in the Asian region. Below is the list of the authorized Forex brokers that accept clients from Sri Lanka.
5$
CySEC, FCA, ASIC
30$, 50%+20%
30:1
2009
MT4, MT5, WebTrader
$100
CySEC, CBI, FSA, FFAJ, BVI FSC, FSCA, FSRA
1:400
2006
MT4, MT5, WebTrader, AvaTradeGO
USD 5,000
FINMA, FCA, ASIC, FSA, MAS, AFM
N/A
1:30
1992
SaxoTraderGo, SaxoTraderPro
$5
SVGFSA, FCA, DFSA, FSCA, FSA
From 30% to 100%
1:1000
2010
MT4, MT5
15
CySEC
30%
1:500
2015
MT4, WebTrader
$250
FSCA
1:200
2012
MT4, WebTrader
100$
FCA
N/A
30:1
2008
Custom
$10
Risk Warning: YOUR CAPITAL MIGHT BE AT RISK
N/A
1:1000
2013
Proprietary
10 USD
FCA, CySEC, FSA
N/A
1:Unlimited
2008
MT4, MT5, WebTerminal
$10
N/A
N/A
1:500
2019
MT4, custom
$10
1:500
MT4
250$
FCA, NFA
N/A
200:1
1999
MT4
$25
ASIC, CySEC, FSA, BVI
50%
1:400
2001
WebTrader, MT4, TradingView
100
FCA, CySEC, DIFC, CIMA
N/A
500:1
1977
MT4, MT5
$100 AUD
ASIC
N/A
500:1
2005
WebTrader, MT4, MT5, IRESS
AUD$200
ASIC, SCB, CMA, CySEC, FCA, BaFin and DFSA
N/A
1:400
2010
MT4, MT5, cTrader, TradingView
$50
N/A
N/A
1:500
2015
MT4
1 USD
ASIC, FCA
10 USD
1:500
2005
MT4, MT5, WebTrader
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of the retail investor, accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
The main financial market regulator in the country is the Central Bank of Sri Lanka (CBSL). It operates under the governance of the Foreign Exchange Act, which came into force in 2017. Notably, under that act, there were three groups of individuals/institutions created that were officially permitted to deal with Forex operations in Sri Lanka. Those are:
The first group consists of banks mainly, either private or public ones. The second group represents the bodies that were officially prohibited by the CBSL from carrying out any financial operations including the local brokerage companies. And, finally, the last group includes those individuals/organizations that were appointed by the central bank to deal in foreign exchange for specific purposes subject to terms and conditions. Unfortunately, CBSL together with the government announced trading Forex completely illegal for Sri Lankan citizens both inside and outside of the country. That is why Forex traders residing in Sri Lanka trade with international brokerage companies licensed and regulated by leading Asian market regulators.
There are numerous regulatory bodies safeguarding the currency exchange market in Asia. However, the most notable ones are the Securities and Futures Commission (SFC) in Hong Kong, the Securities and Exchange Board in India (SEBI), the Financial Services Agency in Japan (FSA), and the Monetary Authority of Singapore (MAS). All these organizations serve as a protecting shield against potential scams, frauds, and otherwise illegal behaviors on the securities markets. Some of these organizations, like SFC, are non-governmental organizations, whereas SEBI and FSA are government-appointed institutions and directly reporting to the ministries of the countries. The Monetary Authority of Singapore has been a central bank of the country at first until later adopting the functions of financial regulatory authority. MAS is actually one of the most respected regulatory bodies for Sri Lankan traders.
Trade with FSA-regulated broker – AvaTrade
Forex trading is not taxable in Sri Lanka for one simple reason – it is considered to be an illegal activity. Usually, earnings generated through trading on other financial markets would be subject to capital gains tax, which is 10% of the net gains. However, since illegal activities cannot be reported on the tax files (technically it can be but would result in legal consequences), Forex earnings of Sri Lankan traders cannot appear in the revenue authority system. Hence, trading Forex is tax-free in the country. But, the traders in Sri Lanka have to be extremely careful about the earnings that they generate through trading Forex. Since in some cases, whenever banks notice a regular income from unauthorized sources (brokerage companies for instance), they might delegate the case to the special investigating organ.
Sri Lankan rupee is not available for trading within the Forex currency pairs portfolio, because it does not represent attractive enough features for traders. LKR is not in high demand for international transactions. Hence, traders in Sri Lanka usually go for popular regional currencies available in the portfolio of the best Sri Lankan Forex brokers. One of the most popular Forex currencies is the Japanese Yen (JPY), which is in fact, part of the seven major Forex currencies and dominates the Asian market. You can find JPY currency pairs with almost every leading brokerage company operating with Sri Lankan traders. However, you can also come across certain exotic regional currencies within the tradable Forex assets of the brokers. For instance, you can trade Hong Kong dollar and Singapore dollar currency pairs against USD, EUR, or GBP.
The most popular Forex pairings with the Japanese Yen (JPY) are:
Trade JPY currency pairs with AvaTrade
There is no cap on leverage for Sri Lankan Forex brokers since Forex is not a regulated or legal trading market in the country. Therefore, you can enjoy the flexible leverages without any further restrictions. However, you have to be especially careful with high leverages since they impose great risks on your finances. Regard it as borrowed funds from the broker, a loan, and carefully measure your risk tolerance before you commit to leveraging levels of 1:2000. You can check the leverage caps of the largest financial authorities and dictate your risk allowance accordingly. For example, in Europe, the leverage limit is 1:30 which is quite restrictive. The optimal leverage level that you can find with the best brokers Sri Lanka is between 1:200 and 1:1000. Anything below or above the limits is considered to be more or less unprofitable or inconvenient for you. If you are an experienced Sri Lankan trader then you can highly benefit from flexible leverages.
As we have previously mentioned it is better to avoid bank wire transfers for Sri Lankan Forex traders not to reveal to the banks and potentially the government that you are involved in trading Forex illegally. Therefore, you need to use alternative payment methods, which are available in abundance with the top Forex brokers Sri Lanka. The extensive list of the available payment solutions will usually include some of the most popular methods like Skrill, Neteller, and PayPal, as well. These online payment systems are highly secure and reliable for all kinds of transactions and especially Forex. In most cases, you will not be charged for deposits and withdrawals using these methods from the broker’s side. However, the payment method providers might have certain fees depending on the time frame of processing the transfer. Instant payment options are the most expensive ones, therefore, if you want to save your money, be prepared to wait for the transaction to be completed for 2 to 7 working days.
Use skrill payments with AvaTrade
Scamming has been around roughly the same amount of time that humans have been around. And that is not an exception for the Forex Sri Lanka market as well. It has come a long way and embedded itself in today’s technologically developed world. As in any other country, Sri Lanka demands that you be as vigilant as ever when trading Forex on its market. Reports of Forex scams began to circulate in early 2009. Over the years big corporations have become too big of a target for scammers, therefore, they decided to venture out in the sea of untrained and inexperienced traders to hunt. In 2016, LKR currency was very fragile, the only way the CBSL was seeing was inflating the currency by themselves. This was probably a gold mine for Forex scammers in Sri Lanka when they would offer high returns in future deals, hoping to fool traders that didn’t know of the inflation plans. This was the reason the IMF actually criticized the CBSL and connected them to the increasing amount of online Forex scams.
Fortunately for the traders, most of the scammers were warded off by the CBSL, but it also resulted in prohibiting Forex trading in the country. No matter how under control a webspace can be, there will always be a scammer that can squeeze through, so we advise you that you conduct thorough research on individual brokers before you commit to any of them and double-check that they are regulated by one of the regulatory authorities mentioned above in the text.
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