Forex Trading in the UAE

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Written By
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Written By
Royston Wild
Royston is an experienced investor and writer. His expertise includes stock recommendations through to commodities, forex, and macroeconomic news. Royston's background includes roles as a stocks and commodities reporter, and editor of forex coverage at Shares Magazine.
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Edited By
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Edited By
James Barra
James is an investment writer with a background in financial services. He has worked as a management consultant, where he delivered large-scale operational transformational programmes at some of Europe's biggest banks. James authors, edits and fact-checks content for a series of investing websites.
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The United Arab Emirates (UAE) is one of the world’s fastest-growing financial hubs. Its strategic position at the junction of Europe, Asia, and Africa makes it a gateway for international trade, and therefore a natural epicentre for financial services, helping to strengthen the Emirati Dirham (AED).

This guide describes how traders in the Emirates can deal forex online. It explains how currency trading is regulated, the region’s tax regime, and demonstrates how a forex trade could work.

Quick Introduction

  • Forex trading is small in the UAE but growing at a rapid pace, in part thanks to the region’s low taxes combined with government initiatives to develop the financial services sector.
  • Traders can deal in a wide variety of forex pairings, including crosses involving the region’s domestic currency, the Emirati Dirham (AED).
  • The UAE’s financial markets, including foreign exchange, are chiefly regulated by the Securities Commodities Authority (SCA).

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How Does Forex Trading In UAE Work?

Financial services are becoming increasingly important for the UAE as it seeks to reduce its economic dependency on oil revenues.

The region’s strategic geographic location, modern infrastructure, business-friendly culture and favorable tax regime all make it a progressively attractive destination for forex trading.

The federation is responsible for less than 1% of total turnover in the forex market, according to the Bank for International Settlements (BIS). But currency trading is growing at a swift rate: between 2019 and 2022, the average daily turnover of currency transactions soared 44% to roughly $66 billion.

1 year EUR/AED currency pairing courtesy of xe.com
Source: Xe.com

The UAE’s official currency is the Emirati Dirham (AED), which is controlled by the federation’s central bank. Its value is fixed (or pegged) to that of the US dollar at an exchange rate of 3.6725 to 1, a decision that promotes financial stability and thus attracts foreign investment. It also helps facilitate international trade flows.

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As with other forex trading centres, investors in the UAE have dozens of major, minor, and exotic currency pairings to choose from beyond their domestic currency, in this case, the AED.

Currency trading is legal and regulated in the UAE by the Securities Commodities Authority (SCA), which governs all financial activities (excluding banking) in the region.

Its mission is to “develop and enforce a flexible and integrated legislative and oversight system that protects investor rights, promotes fair transactions, increases investor awareness, and enhances the competitiveness and attractiveness of the UAE capital market.”

However, there are also two financial free zones in the territory which oversee non-banking financial services within their respective territories. These are the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM).

Like the SCA, these bodies are responsible for issuing licences to forex brokers.

Islam is the official religion of the UAE, and so financial activities must comply with the principles of Islamic (or Sharia) law, one of which is the prohibition of interest (or riba) payments.

As a result, forex accounts that include interest payments or swap fees on overnight positions are not typically permitted. Instead, many forex traders in the UAE opt for swap-free Islamic trading accounts.

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Royston Wild
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Is Forex Trading Taxed In UAE?

The region’s growing popularity reflects in large part its reputation as a favorable tax environment.

Neither personal income tax nor capital gains tax are payable by UAE residents, which saves currency traders from having to siphon off a significant portion of their profits to the authorities.

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The low-tax environment in the UAE offers a notable advantage over many tightly regulated and taxed forex regions, such as Europe, the UK and the US.

When Is The Best Time To Trade Forex?

Traders can deal in forex 24 hours a day (except on weekends), whether they reside in the UAE or elsewhere.

However, at particular times of the day market volatility and liquidity can be more pronounced, giving investors improved chances to book a profit. Currency pairings also tend to be choppier just before and after the release of key data from major economic regions.

The best time to trade forex in the UAE generally starts from 10:00am Gulf Standard Time (GST). This coincides with the opening of major financial markets in Continental Europe, at 8:00am.

Market volumes pick up even further when the London market – which accounts for around 40% of all forex trading globally – kicks off at 11:00am in the Emirates.

Trading conditions can be even more favorable when the UK, US and UAE trading sessions converge later in the day. Trading in New York begins at 4:00pm GST.

A Forex Trade In Action

Here I’ll demonstrate how a currency trade on the AED might look…

Picking A Currency Pair

The first thing I’ll do in this hypothetical example is pick a forex pairing to trade. I’ll plump for the EUR/AED. This involves the Euro and the Emirati Dirham.

While not day traded in the same volumes as currency pairs like the EUR/USD, and not available at many online brokers, it still sees action owing to the economic relationship between Europe and the UAE, notably in trade and tourism.

Doing My Prep

My plan is to capitalize on price movements after an upcoming announcement from the Ministry of Energy and Infrastructure regarding the direction of the region’s oil market, as rising oil prices have the potential to strengthen the AED against the EUR.

The first thing I do is look through a raft of information that will provide clues as to whether oil prices could rise, fall, or stay the same. I’ll consider information from the Supreme Petroleum Council (SPC), Dubai Petroleum Establishment (DPE) and Emirates News Agency (WAM), paying particular attention to production quotas and agreements, export figures, plus supply and demand forecasts from the EIA Short-Term Energy Outlook.

I’ll then use technical analysis to help me gauge which way the EUR/AED pairing might move and by how much. I’ll examine historical price and volume data and look to identify things like support and resistance levels, moving averages, technical indicators and chart patterns.

Day trading chart with UAE currency
Source: TradingView

Making The Trade

Having completed all of this, my view is that oil prices will rise. If I’m right, the EUR/AED could fall from levels of 3.98, allowing me to book a profit.

To do this, I open a short position in the pairing, which involves me selling the EUR (the base currency) while simultaneously buying the AED (the quote currency).

When placing the trade, I use popular risk management tools to help me cement my earnings if I guess right, or to limit my losses if things go badly.

I establish a ‘take profit’ order at 3.95, which closes my position if the EUR/AED hits this level, and then a ‘stop loss’ instruction that will close my position if the pairing rises to 4.00.

A few minutes after placing my instruction, the Ministry of Energy and Infrastructure announces a planned reduction in oil production, independently from OPEC+, indicating a tightening of supply in the oil market, and potentially raising prices in the near-term.

The Dirham strengthens as a result, and within 4 hours the EUR/AED has fallen to my take profit target of 3.95.

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Trading currency pairs containing the AED, available on platforms like Interactive Brokers, may be attractive to short-term traders, but limited volumes and high volatility mean you should be prepared for wider spreads, potentially cutting into profit margins.

Bottom Line

Forex trading volumes in the UAE are currently far behind those of major global financial hubs like London and New York, as well as other Asian markets like Singapore and Hong Kong.

But dealing activity is accelerating, as a low tax regime and regulatory changes in recent years make the region an attractive place to do business with the UAE’s top-rated forex brokers.

The UAE’s location also makes it an appealing destination for currency traders. With trading hours overlapping those of Europe and North America, investors have added opportunities to earn as trading volumes and price volatility pick up when Western markets open.

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