Equity meltdown pushes investors into FX

More and more investors around the world, including the Gulf, are turning to foreign exchange trading after investors burnt their fingers in the equity markets, analysts said.

Betsy Waters, Global Director of dbFX.com — an online retail foreign exchange (FX) trading platform of Deutsche Bank, said retail forex's popularity as an asset class soared in 2008 from a customer and trading perspective.

"Our more than doubling of customer numbers can be partly attributed to today's uncertain economic environment with investors wanting the safety of knowing their capital is with a provider which is backed by a larger, well-recognised institution such as Deutsche Bank," Waters said.

The portal saw global customer numbers increase by over 250 per cent, as investors looked to forex as an alternative, and uncorrelated, asset class to equities and bonds. Volumes also notably increased from 2007.

Middle Eastern trading volumes for dbFX jumped by 226 per cent between fourth quarter of 2007 and Q4 2008 as a growing number of investors in the region moved into forex market.

The EUR/USD was the most popular currency pair on the platform for the regional traders accounting for 83 per cent of all trades, versus 53 per cent of volume the previous year, an increase of 57 per cent. This concentration indicates that the Middle East investors focused on the most liquid currency pair with the tightest spreads. The group of currencies representing carry trades was only 24 per cent of volume in 2008 versus 36 per cent in 2007, as the carry trade – the dominant trading strategy in 2007 – lost popularity with investors who moved out of leveraged currencies as global interest rates fell last year, the portal said.

Waters said the company is bullish about the long-term prospects for retail foreign exchange.

"As active traders become disenchanted with the equity markets they will turn to the FX markets for trading opportunities. In many countries, retail traders can only buy and hold equities, while forex markets offer the ability to buy and sell currencies based on your market views."

Saber Daboussi, CEO of online foreign currency trading firm Advanced Currency Markets (ACM), yesterday said the company saw good growth in forex trading volumes, notwithstanding the global economic slowdown.

He said the firm has seen a significant number of investors migrating from the stock and property markets even before the start of the crisis. "We are looking at serious and big-time investors as well as novices who both see the potential rewards of the business. Not to be insensitive to other industries, but current conditions have actually been very positive for us with monthly volumes now exceeding $150bn per month since September; and our clients are trading more than ever. We are looking to sustain this upward momentum."

As the global economy continues to slide, investors are finding a lucrative alternative in the foreign currency trading business, which has become the world's largest financial market, with volumes reaching over $3 trillion (Dh11trn) daily.

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