Crypto derivatives are stealing the spotlight in India. Over the past year, trading in futures and options has surged to more than three times the volumes of spot markets on local exchanges. Due to this, global venues see India as a must-win market, with platforms going compliance-first by localising KYC/AML and aligning products with Indian rules to capture the country’s vast growth potential.
According to experts, over the past year, there has been a dramatic rise in the trading of crypto derivatives – futures and options (F&O), outpacing spot trades by a factor of three or more on major Indian platforms. The factors driving this momentum are: the ability for traders to amplify returns through leverage, sharp run-up in global crypto prices, and India’s evolving tax and regulatory environment.
While spot faces a flat 30 per cent capital gains tax on profits plus 1 per cent tax deducted at source (TDS), futures avoid TDS and qualify for slab-based taxation with loss offsets. Derivatives trades do not involve an outright transfer of the underlying asset, because of which the profits can be declared as ‘income from other sources,‘ often at a far lower effective tax rate.
Abhay Agarwal, the founder and CEO of GetBit, a Bitcoin-native financial services platform, added that in Indian crypto derivatives, one can get exposure of 10x to 50x — or even more leverage — on their initial margin, compared to a much lower leverage in equity futures.
“Unlike spot’s buy-and-hold bias, derivatives enable capital-light exposure, hedging and advanced strategies. Traders use perpetuals for directional plays, options for defined-risk structures and basis/funding trades for arbitrage. Leverage minimises upfront capital and avoids TDS drags, while hedging allows more sophisticated portfolio management,” commented Himanshu Maradiya, the founder & chairman of CIFDAQ, a cryptocurrency exchange and blockchain ecosystem.
Global exchanges are now attuned to India’s rising appetite for leverage and derivatives, as evidenced by the recent scale of offshore platforms like Binance and KuCoin, which have secured Financial Intelligence Unit (FIU) registration even as Coinbase prepares for a re-entry.
Attracting Indian users means adapting to stricter local compliance, including anti-money laundering rules, FIU-India registration, localising KYC/AML, tailoring products to fit regulatory expectations, and sometimes working with domestic partners.
‘No open book’
Yet, the Indian market is far from being an open book. “INR deposit and withdrawal channels are strictly monitored, and compliance hurdles remain significant. Some global platforms are restricting access to Indian citizens or reworking KYC requirements in response to regulatory risk. Others try to innovate around regulatory lines or invest in education and transparency. The opportunity is large, but so are the compliance demands and risks of sudden policy shifts,” the GetBit CEO explained.
However, this period of rapid growth in crypto derivatives may be unsustainable due to the risk of regulatory intervention. It can be offset by a harmonised tax structure for derivatives, restrictions on leverage, or more robust reporting rules.
Agarwal also noted that the regulatory environment is complex and rapidly evolving. Indian authorities — the RBI, SEBI, Ministry of Finance, and CBDT — have voiced concerns about the proliferation of derivatives in crypto. The volatility of the underlying assets means that mass use of high leverage could translate to significant retail losses if markets turn.
tax evasion
There is also anxiety about tax evasion and cross-border capital movement, since most derivative order books reside on offshore platforms.
“Regulators highlight the dangers of excessive leverage, where 90 per cent of retail traders lose money, alongside systemic and AML risks. India’s stance has shifted from prohibitive to risk-based integration: FIU enforcement on AML, RBI caution on stability, and SEBI exploring leverage limits and suitability norms, echoing lessons from equity derivatives,” Maradiya highlighted.
Alongside, crypto as an asset class sits in a “grey zone”. While it is legal to own and trade in India, it is nowhere near being recognised as legal tender.