Best Forex Brokers in UAE

Forex Trading in UAE Guide

How Do Nominate the Best Forex Broker in UAE?

With so many Forex brokers out there offering different services, how do we choose the best and separate from the others? We used the following criteria to select the best Forex brokers in UAE:

❖ Regulations

The first and the most important thing is security, the broker’s credibility, and the protection of your money. Our number one priority is to research whether the broker is regulated or not and where it is regulated from.

❖ Ease of Trading Platform

Every broker provides its traders with a software platform that is used for trading Forex. Our selected brokers provide platforms that are simple and user-friendly. There are some trading platforms that are complex, overwhelming and requires a certain system configuration. We avoided brokers with such platforms.

❖ Fees & Overnight charges

Some brokers charge fees on opening trades, or they charge you for keeping your trades open for long periods (overnight or swap fee). Try to choose brokers with minimum to no trade fees. Our selected brokers are researched carefully and well-reviewed from trading cost perspective.

❖ Deposits & Withdrawals

We always look for brokers that are known for their easy deposits and withdrawals process. The last thing we want our readers to go through  is depositing their money and waiting for a long time to sight their fund in the trading platform. Also, we avoid brokers that are know to make their users wait for a long time to get their money back after a withdrawal order.

Is Forex Trading Legal in UAE?

Yes, currency trading is legal in the UAE!
The Central Bank of the UAE regulates the forex brokers, while the Securities and Commodities Authority (SCA) issues trading licenses.

That said, you are safe if you work with regulated forex brokers.

The Concept of Forex Trading

Forex is an acronym for foreign exchange, often abbreviated as FX. Subsequently, forex trading is the buying, selling and exchanging of currencies at specified prices.

Since every currency in the world is included in the foreign exchange market, there is no trading floor or official foreign exchange location. Thus, the foreign exchange market is a decentralized market, unlike the stock market with physical exchange locations.

The forex market is the biggest in the financial markets as central banks and governments, too, trade currencies to stabilize and control their currencies. So naturally, such huge institutions have the war chest to trade currencies for millions of dollars at any time, which explains why the market achieves over $5 trillion daily turnovers.

Exchange Rates & Currency Pairs

Forex traders exchange every currency. And since the market is globally decentralized, the trade can happen anywhere, be it online or over-the-counter. But, regardless of the location, the market forces of demand and supply determine the exchange rates for every currency.

When talking of forex traders, we imply the day traders’ goal is to profit from the price discrepancy between two currencies.

Every currency is available on the FX market, but most traders only use a few pairs because most currencies are volatile. A single event, whether a natural disaster or political decision, can affect the whole market. That’s why traders pay close attention to the news and have an in-depth understanding of international relations.

Forex traders exchange every currency. And since the market is globally decentralized, the trade can happen anywhere, be it online or over-the-counter. But, regardless of the location, the market forces of demand and supply determine the exchange rates for every currency.

When talking of forex traders, we imply the day traders’ goal is to profit from the price discrepancy between two currencies.

Every currency is available on the FX market, but most traders only use a few pairs because most currencies are volatile. A single event, whether a natural disaster or political decision, can affect the whole market. That’s why traders pay close attention to the news and have an in-depth understanding of international relations.

Group of Currency Pairs

Forex trading relies on the exchange rates, which explains how much one currency is worth another currency. So it’s to say; trading forex is exchanging the correlation between a currency pair, e.g. American Dollar (USD) is weighed against the United Arab Emirates dirham (AED).

Currency pair is the standard as to how to represent correlations between currencies. We use the official currency abbreviation, separated by a forward slash (/). Examples include:

• AED/USD – weighs the United Arab Emirates dirham against the American Dollar.
• EUR/USD – weighs the Euro against the American Dollar.

When pairing these currencies, the foremost symbol represents the base currency. On the other hand, the symbol that comes after the forward-slash is the quote currency.

Like in our examples above, the American Dollar is the quote currency for the United Arab Emirates dirham and the Euro, which both take base currency roles.

Currency pairs help you know the value of a home currency compared against a foreign currency.

With that being said, no forex trader trades every currency in the world. Instead, most limit themselves to a handful of currency pairs. We categorize these pairs into three groups based on their stability and international influence. The groups include:

• Major pairs
• Minor Pairs
• Exotic Pairs

Major Pairs

Major currency pairs are any pair that includes the US dollar (USD). So, in the UAE, AED/USD could easily fall in this category. However, officially, there are only four main major pairs. They include:

• EUR/USD – Euro and US dollar
• USD/JPY – US dollar and Japanese yen
• GBP/USD – British pound sterling and US dollar
• USD/CHF – US dollar and Swiss franc.

Other equally popular options widely considered to be members of this category include:

• AUD/USD – Australian dollar and US dollar
• USD/CAD – US dollar and Canadian dollar
• NZD/USD – New Zealand dollar and US dollar

These seven major pairs are the most liquid, and hence, the most traded in the market. Together, they account for 75% of all forex traders globally. Also, they have the tightest bid (buy) and ask (sell) spreads, which will tackle /shortly.

Though, among the seven, EUR/USD remains the most traded, recording the biggest daily turnover. As a result, the pair is the easiest to analyze and the most attractive choice for institutional traders.

Minor Pairs

Minor currency pairs include any currency among the seven major pairs, excluding the US dollar. They are constituted by a combination of any of the following against other currencies:

• Euro (EUR)
• Japanese Yen (JPY)
• British Pound (GBP)
• Swiss Franc (CHF)
• Canadian Dollar (CAD)
• Australian Dollar (AUD)
• New Zealand Dollar (NZD)

Exotic Pairs

All other currencies form what we call exotic currency pairs and is by far the largest category. Though this is the most complicated for traders, there are not always sufficient data to back predictions. For example, it isn’t easy to analyze the dirham against the Swedish Krona (SEK) or Turkish Lira (TRY) than against the US dollar.

Though forex brokers offer you many exotic pairs, when trading forex in UAE, you should stick with majors and minors. Unless, of course, you are dealing with a home currency.

Leverage, Spreads and Margins in Forex Trading

Leverage, spread, and margin are the most important concepts to understand before you jump into trading forex. So, let’s take a look at them individually.

Spread

Spread is the gap between the bid and the ask prices.
If you open any trading platform, you will see two prices, bid and ask.

The “Bid”, also referred to as “Sell”, is the price at which you will be “selling” your position at.

The “Ask”, also referred to as “Buy” is the price at which you will be “buying” a position at.

In other words, as per the above image, when you want to buy the EUR/USD pair you will be paying 1.19065, while if you wanted to sell it, you will sell it at 1.19061.

The difference between the buy and sell, or ask and bid, is the spread, and this is how brokers make their money.

In our example, the difference between ask and bid is

1.19065 – 1.19061 = 0.00004 pips.

Do remember that on EUR/USD pair, the pip value is identified as the 4th digit after the decimal, which makes the spread 0.4.

Note: Always search for the tight spreads to maximize your profitability.

Leverage

If you are not so new to Forex trading, then you’ve probably heard the old cliche “Leverage is a double-edged sword!” Some traders say, “Leverage is a two-way street.” What do they mean? Hold that thought.

Leverage enables you to control your broker’s money to complement your investment and improve exposure to increase your profit in each trade. Technically, it is a loan from your broker.

For example, let’s assume that the broker offers a leverage of 1:100. Now to trade a $10,000 worth of position in EUR/USD, you need to deposit only $100 to your account. Leverage enables you to control $10,000 with merely $100.

Now let’s assume that the price of EUR/USD went up from 1.19 to 1.20.
Then, for every dollar you invested you would make 1 cent., and since you are controlling a $10,000 worth of position, it means your profit is 10,000 cents ($100) profit for $100 invested.

In this case, your return on investment is 100% (a profit of $100 on $100 invested). And this is the main advantage of leverage.

Margin

Margin is the minimum amount of money you need to open a position with your broker. It’s usually expressed as a percentage of the full position. Like in the example, for the $10,000 for a $100 investment, the margin here is 1%.

Most forex brokers have between 0.25% to 2% margin. When choosing your broker, it’s an important consideration as it helps you tell the maximum leverage you can wield with a trading account.

UAE Laws for Forex Brokers

As already mentioned, the Central Bank of UAE, in conjunction with SCA, have a set of provisions to ensure only forex brokers that offer high-quality, fair and transparent services get licensed. Among these requirements are:

• The intermediary should be locally-owned, with at least 60% of paid capital coming from the national shareholding.
• The minimum capital range is one to three million dirhams.

That’s, however, not to say that the country prohibits offshore brokers. These brokers need a domestic representative and must prove their liquidity.

SCA ensures the registered Forex brokers UAE are compliant and maintain fair and honest business practices. It does this to protect traders and improve the overall financial markets.

How to Start Trading Forex in UAE?

Some people trade forex in UAE to grant extra income. But of course, just like elsewhere globally, some traders do it as their primary source of income. So what’s important is to sign with one of the forex brokers registered with the CB of the UAE.

Here is a step-by-step guide on how to start trading forex in the UAE:

Learn Trading Methods

Before you start trading, you need to learn how to trade, identify your trading methods, and develop your strategies.

The three methods to trade forex include:

1. i) Currency Pairs: It’s the traditional way of trading currencies. But you need a broker company that acts as the link between you and the decentralized forex market.
2. ii) Contract for difference (CFDs) – This is a trading method that involves derivatives based on the underlying assets. Most forex brokers in the UAE that we recommend on here offer CFDs.

First, find a forex broker. However, the choice of your broker depends on trading methods and strategies. So, before we look at how to find your broker, let’s look at trading methods.

iii) Spread betting: The method uses a forex derivative but requires traders to predict whether the value of a currency pair will rise or fall within a specific period. But this is an option mostly offered by offshore forex brokers as it’s mostly deemed as betting, which is haram (forbidden) in the UAE.

You decide how you want to trade forex before picking your broker because each broker specializes in a specific way of trading.

Identify Your Forex Trading Strategies

You now have your trading methods, but you must also get your strategies right. There are many trading strategies that you can incorporate. They include:

Day Trading

Day trading is not a get-rich-quick scheme. Rather, it’s an approach to trading financial instruments. A trader opens a position and closes it on the same day to take advantage of the volatile market movements. The trader often holds the position for only a few minutes and closes it.

Consequently, the frequent but small market changes make it tasking and require special skills. Most entrants lose money in the long run.

Swing Trading

Swing trading employs the same principles of day trading, except that the trader extends the duration of holding a position from a few minutes to a few days or weeks.

You get the advantage to do some market analysis and study price movement trends. As a result, it’s a lot easier to master than day trading. But it’s not to say forex swing trading is not without risk.

On the rear side, most brokers charge you a fee when you keep a forex position overnight, which is called “swap” fee.

Long vs Short Trading

If you have traded stocks, then you’ve heard long and short trading.

When you buy a currency pair with the hope to sell at a higher price in the future, that’s long trading.  On the other hand, if you sell a currency pair in anticipation of a fall in price, that’s short trading.

In simple terms, you hold a long position, your trade makes a profit with the rise in the price, but for a short position, your trade makes a profit when the price falls.

In forex trades, you take a “long” position with one currency and “short” with another when you open a trade.

Read more: What is CFD contract for difference?

Warning: Trading CFDs on a leveraged basis involves a significant amount of risks