Foreign exchange (forex) trading is quickly becoming one of the most popular forms of investment in the Middle East, particularly in the UAE.
Foreign exchange (forex) trading is quickly becoming one of the most popular forms of investment in the Middle East, particularly in the UAE. And not surprisingly so, considering that the FX market has remained, for some years now, the largest market in the world bar none, with over $3 trillion (Dh11trn) trading hands every day. It is estimated to be more than three times larger than the equities market and five times larger than the futures market, which should help put into perspective the sheer size of the forex market.
For a region that had long slipped under the forex radar, the Middle East sure seems to be making up for lost time. Since the onset of the global economic downturn and the subsequent property slump, in particular, investors in the region are increasingly looking to forex as a promising investment option. And with more and more investors entering the market, forex trading volumes in the region have shown a dramatic increase in recent years, nowhere more so than in the UAE.
For evidence of just how much importance the region is being accorded as an emerging forex trading market, one only needs to look at the growing number of global forex brokers opening their regional offices in the Middle East, with Dubai emerging as the destination of choice. Add to the mix the local companies that seem to spring up unendingly, and you have a highly competitive scenario where big global players and home-grown businesses all vie with one another for a slice of an ever-increasing market.
The reasons why forex trading holds such immense appeal as an investment option are not far to seek. Forex is an immensely important asset class for investors looking to diversify their portfolios, and offers several advantages and benefits when compared to, say, futures or equities.
For starters, forex is a highly liquid market which is open 24 hours a day, allowing investors to choose their own suitable trading hours. This means that investors can trade whenever they want to. The all-embracing nature of the market helps, too; the forex market offers unrivalled access and is open to every type of investor – from individuals and small businesses to big corporations, banks and even governments. Moreover, the initial investment required to start trading forex is minimal, and the process of getting started is delightfully simple.
In the past couple of years, investing in forex has had its ups and downs with volatility increasing exponentially over the course of 2008 and early 2009. It's only since March 2009 that things have begun to stabilise somewhat. In the current economic circumstances, trading forex can be appealing for a variety of reasons depending on your trading strategy. Many short-term investors find forex appealing due to the fact that currencies can be traded 24 hours a day. Long-term investors, on the other hand, can use forex not only for investment purposes but also for hedging other income that is denominated in other currencies.
The important thing, though – regardless of whether you are in it for the long haul or just looking to make a quick buck – is to make sure that you know what you're doing. Setting realistic targets and having a fair understanding of the risks involved would certainly help; so would being sufficiently aware about market trends and opportunities.
Commissioned by Emirates 24/7 Magazine
Written by George Tchetvertakov