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03 December 2023

Investors shift to forex trading on stock fluctuations

By Mohamad Al Kady


Investors in the UAE are channelling part of their money, withdrawn from the stock exchanges following the continuous bearishness to currencies and property markets, it has been learned.


Currency experts in the country said investors who pulled out part of their investments in stock markets are directing these funds to two major fields, 40 per cent in forex trading and 60 per cent in property market.


As forex trading is mostly executed online and the market is not regulated, they could not give figures of forex trading in the UAE, but they estimated the daily turnover of regulated brokerage firms in the country reached $150 million (Dh550m) last year, while dealings with US and European currencies brokerage firms are much higher.


Experts estimate the daily turnover of forex trading globally reached $3.2 trillion in 2007 and they expect the daily turnover to surge to $3.8trn this year.


The forex or currencies exchange market gained ground against the equities market following continuing fallout from the sub-prime mortgage crisis, fears of recession in the international economy and the fluctuation of stock markets last month.


The Dubai International Financial Centre (DIFC) and the Dubai Financial Services Authority (DFSA), are working to monitor financial institutions within the UAE. There are a few companies regulated and authorised by the DFSA and DIFC to deal in forex trading.


“As Dubai is considered the main business hub in the Middle East, we expect more investors to trade in currencies as it’s the new trend. However, the type of investors has changed. Now we can find a lot of corporates, particularly import and export firms, investing in forex just to cover the difference in currencies. That’s why we are expecting forex trading will be more popular and it will be expanding in the future,” said Serif Sanad, institutional desk manager at GFS Investments.


“Options for forex traders in the UAE are basically either trading with a forex company existing in the country, and using their online tools or using the services of offshore companies. Of course, each choice has its own advantages and disadvantages. Firms here are licensed by DFSA and DIFC and they have local bank accounts, so that they do not have to transfer the funds to offshore accounts in Europe or United States,” he added.


“Comparing the business in the Middle East to global trading, we have a small percentage of the market share because the business is new in the region and especially in the Gulf. But with the boom of internet and advertising campaigns, retail clients of forex increase every day in the region. But the rush for currency trading created a high percentage of loss due to the lack of knowledge of the business and the trade. Lately, the stress on knowledge of the forex market has been a high priority  and there are many companies and institutes, which offer training on trading techniques and educate investors how to analyse technical and fundamental news,” he said.


“Stock markets in the Middle East are still immature, and the movements are based on few investors who bid in huge amounts of money. With such markets you always have a constant fear of drops and spikes, as the technical and fundamental analysis doesn’t apply in a perfect model. On the other hand, forex is a huge global and international market, the daily turnover was $3.2trn in 2007,” said Sanad.


Unregulated market


Adam E Kaye, centre manager at Online Trading Academy, said forex is a highly unregulated market. Brokers do not have to report the volume of trading to any authority so estimates of forex trading varies. But people are studying forex trading more than stock trading,

he added.


“Forex trading is totally a different type of trading because investors do not have to invest as much as investing in stock markets. For every dollar in their account they can get a margin of $100, and this increases the opportunity of achieving profits,” said Kaye.


“Investors can always trade in forex. If they have the right technical analysis, they can take right decisions to buy first and then sell or sell first and then buy. Changes, surprises and decisions by financial authorities in the global economy creates volatility in the market so traders can make money. Investors need this volatility to achieve profits,” he said.


But forex trading has high risks, which may lead to a total loss of funds. “High risks in forex trading come with higher leverage systems. Traders should do a risk assessment before getting into the market. Therefore, a trader should only trade within the risk percentage he has set for himself and not to go off the plan, if the market went against him. Good research narrows risks, especially through online tools. Technical  analysis and market reviews available on the web from major financial institutions can help investors in taking their decisions as well as positions in the market,” Sanad said.


He said investors in forex trading should carefully select  brokerage firms to deal with and this needs deep understanding of different types of companies and their credibility.


Kaye added major risks in forex include not knowing techniques of trading and the lack of understanding of the platform, so investors may take wrong decisions and loose their funds.


“Selecting the broker is very important. Investors should deal with brokers who they can rely on. Brokers are not regulated and they can change market requirements between daily trading and weekend trading. Investors may loose their money and can go nowhere to complain,” he said.


Online forex trading firms always warn traders spot forex transactions carry a high degree of risk. A relatively small market movement will have a proportionately larger impact on the funds traders have deposited or will have to deposit, he added. This may work against the investors as well as in their favour.


Investors may sustain a  loss of initial margin funds and any additional funds deposited with the firms to maintain their positions. Given the possibility of losing a substantial investment, trading funds should only comprise risk capital that an individual or an institution can afford to lose, he said.