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24 February 2024

‘DIFC can spur futures and forex trading’

By Mohamad Al Kady

The world economy and markets are becoming increasingly volatile and investors need more hedging tools to protect their capital. Trading in commodities and currency exchange is a major hedging channel for institutional investors, according to Mike Leung, director of GFS Investments Middle East.


He expects Dubai International Financial Centre (DIFC) to mature as a leading regional financial centre for trading in commodities and forex and oil futures, although it may take a little more time.


Why do you think DIFC needs this time to pick up and become more influential in futures and forex trading?


Let’s go back to the 1970s when Hong Kong started trading in commodities and forex. It had a similar start as in DIFC. Investors and intermediaries took time to understand the importance of trading in commodities and forex and they took more time to get trained and practise such trading. It is the same process here. People need to understand and trust commodities and forex trading first before investing.


Do you think DIFC is offering good coverage and regulations for trading in futures and forex?


Regulation and oversight are on the rise in modern financial markets, boosting investor confidence and making the marketplace a more level-playing field for retail and institutional investors. We at GFS Investments Middle East ensure the highest standards of regulations are in place because we need to work in a regulated environment for the name of the company and for trust in the business at large.


Investors’ confidence is critical to the success of the commodities and forex markets, and the best way to gain confidence is to ensure that the highest levels of integrity are applied to market investors. Maintaining high standards of professional conduct is a must and Dubai Financial Services Authority (DFSA) regulates financial services in DIFC. This offers investors the highest standards of professional conduct based on world-class regulations.


Do you think the GCC region needs this kind of trading?


Of course, there is a high growth rate in regional economies along with the increasing liquidity. When people have a surplus in their earnings they go first for property then stock markets, and commodities and forex are part of these markets. High growth rates in commercial activities, exports and re-exports create increasing demand among investment firms to hedge against market risks.


Why there is increasing interest in forex trading in the region?


Investors, both individuals and corporate, are interested in currency exchange markets for three main reasons; to protect themselves against changes in interest rates and changes in the value of currencies; hedging their business; and for speculations. Institutional investors, particularly exporters and importers, are highly interested in hedging themselves against changes in currency value.


So do you think hedging is a major driver in commodities and forex trading?


The majority of clients with GFS Investments Middle East are institutional investors who are trading in currencies mainly for hedging. Banks and some hedge funds in the region are investing heavily in commodities and currency exchanges. The international markets became very volatile and commodities and forex trading offers good opportunity for hedging.


Three years ago gold was between $300 and $400 per ounce while now it is more than $900, and those who bought gold three or two years ago achieve very high profits. Also oil prices were ranging between $40 and $50 while it hit $100 recently. Companies buy commodities to hedge themselves against any risks in the world economy that may affect their core business.


GCC and Middle Eastern companies are increasingly interested in this trading because they are becoming more open to international markets and accordingly to risks of these markets. The DIFC offers a good chance for the expanding commodities and forex trading in the region. It can turn out to be a very important centre for futures trading, especially oil, and creating an index for oil futures is a major step forward for the GCC region.


So do you expect futures will be in high demand in the region?


This is why we came here. Our parent company GFS Forex & Futures, based in the US, is a registered Futures Commission Merchant (FCM), a member of the National Futures Association (NFA) and is regulated by the Commodity Futures Trading Commission (CFTC). The company has offices in major business centres such as New York and San Francisco.


GFS Investments Middle East is a company incorporated in DIFC and regulated by DFSA in 2007. We started our operations here six months ago and there is an increasing demand for forex trading among institutional investors, not only in the UAE, but also from GCC countries. We expect hundreds of new clients from all over the region this year as the demand is expected to continue increasing during the next decade.

Forex trading among individual investors became a fashion and it looks like gambling.


Do you think this will continue?


First, doing any business without enough understanding and knowledge is gambling. The same is true in the case of forex trading and investors should get training and deep understanding of trading to achieve profits. It will take time until people in the Middle East region understand forex trading.


The global daily turnover of forex trading reached more than $2.7 trillion, and some estimates say it reached $3.2 trillion, but the GCC stake of this huge trading is less than one per cent because forex trading is very new in the region. The forex market is the largest market worldwide and the region will be involved more and more by the time.


Do you think there is high risk in forex trading?


Any business can be risky. If you have a business in cars and you do not know when to buy and when to sell, it means high risk for your investments. This is why the region needs to expand training and education of forex trading. I am sure DIFC has plans for training programmes to increase awareness about forex and commodities trading.


What about margin trading that increases risks in forex trading?


Margin trading offers substantial leverage for investors but makes trading in foreign currencies highly speculative. So the money that can be made or lost is usually much greater than typical stock or bond investments. Also margin trading helps investors in hedging as they can achieve high profits through low investments. Currently, online trading offers excellent chances for investors because they can follow up any developments in the markets instantly.


They can bid for buy and sell according to these developments and this reduces risks in currency exchange trading. High risks are not a problem, but the essential point is knowledge of managing these risks and minimising them.


Do you think the current training programmes will expand this knowledge?


We see training programmes offering basic education about forex trading, but people and investors need practical training on the real forex trading. This practical training will give investors the real knowledge of currency exchange and futures trading.


Mike Leung

Senior Executive Officer and Director GFS Investment Middle East


Mike Leung has a US Series 3 qualification and holds several key positions inwell-established financial institutions across Asia. He was Director of Excel Financial Services in Pakistan.


Earlier positions held include independent non-executive director of Daido, a listed group in the Hong Kong Stock Exchange, and marketing director of Hong Hing Hong, a brokerage services group in gold and silver trading in Hong Kong. He was also Operations Consultant of Smartrend International Limited, a financial group in Hong Kong.