There is no denying that Forex trading is a risky form of investment; nevertheless, it is proving to be increasingly popular. There is a way to reduce some of the risk, and that is by choosing a regulated Forex broker. Brokers that are regulated in your country of residence offer far better protection for your capital, and will reduce the chances of you being caught out by a fraud or scam. The Forex industry is not regulated on a worldwide scale; instead, it is left up to individual countries to impose requirements and oversee how the markets operate. There are a number of well-known regulatory bodies such as the FCA, CFTC, and CySEC, but those of you considering Forex trading in the United Arab Emirates should be looking for SCA UAE-regulated brokers.
The aims of the SCA UAE and Forex brokers in the United Arab Emirates
United Arab Emirates financial markets are regulated by the SCA. Better known as the Securities and Commodities, it was created in 2000 as part of a federal decree. The Authority reports to the Economy Minister, but enjoys administrative and financial independence and is a legal entity in its own right. There are a number of aims that power the SCA, but for you the most important is its supervision and monitoring of UAE financial markets. Ultimately, the SCA UAE goals are as follows:
- Putting procedures in place to develop a stable economy for the country, and to attract investment from all over the world
- Supporting good practices of all participants in the financial markets
- Offering the best service as regards quality, transparency and efficiency
- Ensuring that investor rights are protected along with those of other market participants.
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Things are a little different for those of you looking to trade currency pairs in the United Arab Emirates. This is due to the fact that there are two sets of rules that apply. The principal financial services regulator for the majority of the UAE is the Central Bank. However, and this is where it may be a little different to what you expect, financial services providers also have to obtain a licence and be registered at an emirate level. A company that wishes to offer financial services to residents of the UAE has to be regulated at a federal and emirate level. To gain the best protection for your investment, you would be wise to pick a Central Bank and SCA UAE-regulated broker.
UAE Forex brokers offer a special kind of trading environment
Along with a number of other countries, the predominant religion in the UAE is Islam, and a high percentage of the population are followers of Islam, which means that Forex trading hasn’t always been the popular choice for Muslim investors. There is still a lot of argument with regard to the nature of this type of investment, and many people still consider it to be against Sharia law. However, there are an increasing number of Muslim investors who are participating with the help of interest-free, Islamic, or Riba Forex accounts.
Traditionally, Forex trading can involve the receipt of interest, particularly when positions are held overnight. Sharia law has prohibited this kind of activity; that is until a way was devised for Muslim Forex traders to invest funds and not be acting against their religious beliefs. A new type of account has been introduced by a large number of Forex brokers, known as the interest-free, Riba, or Islamic trading account.
It has always been common practice for brokers to charge interest on overnight positions. It is not charged for the broker’s profit, but rather to cover banks’ fees that often apply for brokers. With an Islamic account, there are no such charges. Rather than pay interest, Islamic traders will be charged a service charge or a fee for any lots or contracts left open overnight. Some of you are probably saying “Well isn’t that still interest, just with another name?” As far as this goes, it will be your own decision as to whether this type of account suits your religious beliefs or not.
There are an increasing number of Forex brokers in the United Arab Emirates who offer interest-free accounts, but don’t let this be the one and only reason you choose a particular broker. There are a number of important features to bear in mind, such as quality of service, the trading platform available, and instruments available for trading. When you’ve found a few names that seem to tick all your boxes, open a demo account with a few, and give the brokers a test drive.
How the SCA UAE is hoping to make things better for Forex brokers and traders in the UAE
SCA UAE-regulated brokers can feel confident that the Authority is doing everything it can to improve market conditions, not just for traders but for all financial services participants. It is working hard to bring the regulations into line with those of more-regulated countries, thereby improving market conditions. There are a number of ways it is able to do this, including the following:
- Cooperation with various authorities – The SCA UAE has been working with a number of counterparties from the very beginning, aiming to bolster cooperation and swap important information. It has so far worked with countries such as Romania, Pakistan, Kuwait, Poland, Canada, Malaysia, South Africa and the UK.
- Becoming a member of international organisations – So far, the SCA has joined a number of international organisations including the Association of National Numbering Agencies (ANNA), the Islamic Financial Services Board (IFSB), and the International Organization of Securities Commission (IOSCO). The IOSCO was created in 1983 with the aim of bringing together regulators of the securities industry from all over the world. It joins more than 95% of the world’s securities markets, making the organisation a force to be reckoned with.
- Cooperating with internal agencies – The SCA not only concentrates on international relations, but also cooperates with agencies on a local and federal level too; for example, the Central Bank of the UAE, the Ministry of Finance, Dubai Gold and Commodities Exchange and the Department of Economic Development.
