Money makers

Middle East currency traders’ golden hour

Many of the headlines splashed around the economic pages since September 2008’s global financial earthquake have inspired little confidence in Middle Eastern equities. The latest aftershock, involving Dubai World’s liabilities, has put off any return to the boom days of the last decade for a while to come.

If you still have any money left that you are willing to invest, the best course of action may be to put it into an asset class that has begun to come into its own, despite the shaky financial ground in the region: the currency markets, better known as Forex (FX).

“For the FX market, it has indeed been a time of plenty,” said Mario Camara, co-managing director at the Forex company ACM Middle East and Asia based in the United Arab Emirates. “What happened [during the crisis] was a wonderful thing for the Forex market because the volatility drove people away from other markets and [made] the futures market so attractive.”

The steadfastness of the Forex market stems directly from the nature of currencies depreciating or appreciating against one another and, as a result, the more chaotic the fluctuation, the more the market moves. What’s more, according to the experts Executive spoke to, daily trading in the Middle East and North Africa (MENA) region now fluctuates between $2.5 trillion and $3 trillion per day.

“This is the most liquid market in the world and it is more liquid every day,” claimed Michel Daher, managing partner and chairman of FXCM MENA, the regional arm of the global currency exchange company FXCM. “It doesn’t stop, so the sky is the limit.”

Like most asset classes, Forex trading in the MENA region is underdeveloped compared to most other global markets, leaving much room for growth in the sector. How much growth is possible is a point of contention since consolidated figures in the MENA are not readily available.

Forex is very much decentralized as a result of the fact that the industry is made up of disparate business models, ranging from physically present traders within the region to offshore online intermediary traders. Even so, the numbers that do exist reveal that the industry is booming.

According to figures from the Dubai Gold and Commodities Exchange, currency futures transactions increased by 88 percent in 2009. Deutsche Bank’s online Forex platform,, reported a year-on-year increase of 501 percent across the Middle East for the first quarter of 2009 alone. That gargantuan figure is even more impressive considering that globally, the platform saw just a 37 per cent increase in trading volumes over the same period.  

“When all other markets were running for the hills and being chased by bears, this market flourished,” said Camara. Even though Camara could not disclose his revenues, he did affirm that since the global downturn began his company’s gains have been “significant.”

To desk or not to desk

Two different models are at loggerheads over how the industry should be run. The argument is centered on whether it is better to have a “dealing desk” or not.

Those who operate without a dealing desk make money off of pips — the smallest unit of a currency for every trade (cents in regards to US dollars, helal for Saudi riyals, etc.) Those who do operate with a dealing desk also make or lose money depending on whether their clients gain on a currency trade or not. In essence, the client has an account with the desk and the desk has an account with the liquidity provider.

If a client buys one euro, for example, at a certain price, the desk purchases that euro from the liquidity provider at the price shown. If the price of that euro falls, the client is liable to the desk for the difference in value, and vice versa. This model also necessitates that ‘dealing desk organizations’ maintain higher levels of liquidity and risk.

“We are basically making a commission off an introduction. I would have made four to five times as much money if I was a dealing desk, but I don’t want to take that risk,” said FXCM’s Daher, who’s company operates without a dealing desk.

Having a dealing desk allows clients to place orders over the phone and is also a requirement of many international regulatory bodies.

The Central Bank of Lebanon (CBL) regulates FXCM MENA. The company has 20 liquidity providers, which include JP Morgan, Deutsche Bank, Credit Suisse and Union de Banques Suisses. While the CBL is perhaps not a widely recognized regulatory body, it has been heralded by many as having policies that were able to absorb most of the brunt of the global financial meltdown. ACM is regulated by the Swiss Financial Market Supervisory Authority.

“They [dealing desk companies] know your position…so they might show you false prices,” said Henri Chaoul, member of the board at FXCM global. Camara explained that his company’s prices are not exactly those of the liquidity providers, and Daher claimed that his company displays the exact market price “99.99 percent of the time.”


Sami Halabi

Sami Halabi is the director of knowledge and co-founder of Triangle, a development, policy, and media consulting firm. He is also the former managing editor of Executive Magazine.