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5 Things To Consider Before Choosing Forex Broker

A forex broker is a corporation that offers traders a platform for buying and selling foreign currencies. Foreign exchange is abbreviated as forex. If you want to start forex trading, the first step is choosing a broker. You cannot select a forex broker randomly. Before choosing a forex broker, there are many things to consider. This is especially true if you are trading from the UAE. In the UAE, if you pick a random broker without considering the regulators, this may have consequences to your trading business. We expect you to already know the basics of how forex trading works. This article will provide you with the complete guide to choosing a regulated broker in the UAE.


Why A Regulated Broker Is A Must?

Nowadays, half of the win in online trading is to figure out how to trade safely. Any financial transaction is highly sensitive. When a transaction occurs between two foreign parties, the risk grows. If fraud or theft occurs during such a transaction, recovering your money can be very difficult due to the legal intricacies of two distinct nations. There should always be a financial regulatory body in place to intervene when economic and legal issues get murky.


The 5 Important Things To Consider When Choosing Regulated Forex Brokers in the UAE


1. Does The Broker Abide By Islamic Sharia Law in Trading?

Yes, this is a crucial point. The obligation to conduct a trade according to a religious law may seem surprising at first, but it is true. Due to the UAE's Muslim majority, the nation adheres to Sharia Law. Regulators in the UAE guarantee that brokers adhere to sharia regulations. It implies that financial accounting processes must conform to Islamic law's fundamental requirements.


2. Where is your broker located?

The location of the broker matters a lot. The brokers can set up themselves as two types of companies:

  • Mainland Companies
  • Free Zone Companies

Both the structures have their own policy and regulatory authorities. Below is more detail on each.


3. Does your broker hold correspondent regulatory licenses according to location?


Mainland Companies

All seven emirates in the UAE except for 52 free zones are considered mainland. The term "free zones" refers to specified regions reserved to promote foreign investment in the UAE.


The Forex brokers who wish to do business directly with the domestic market must establish a mainland corporation. To do so, the corporation must hold 51% of the local market. Nonetheless, establishing a mainland company supports the business with maximum flexibility in every aspect while dealing with the domestic markets.


It is significant to note that forex brokers that adopt the mainland company structure must be licensed by the Central Bank of the UAE (CB UAE) or the Securities and Commodities Authority (SCA).


Therefore, if you are trading from the domestic market, you must verify CB UAE or SCA recognition before choosing your broker.

Free Zone Companies


The UAE authorities have allotted free zones in Dubai and Abu Dhabi to encourage international investment. Foreign enterprises are encouraged to establish themselves in the free zones. The UAE government has taken a series of steps to adapt the free zones to a more western-style economic landscape. Among the several measures in the Free Zone are the following:


  • Eligibility to establish a 100% foreign-owned office
  • Their separate free zones have their own legal system and courts with authority over corporate, commercial, and civil concerns.
  • Laws are drafted in the English language for the ease of international investors.
  • Zero-tax facility

However, forex brokers in the free zone market must hold licenses from the Dubai Financial Services Authority (DFSA) or Abu Dhabi Global Market Financial Service Regulatory Authority (ADGM FSRA). 


Therefore, if you are trading in a free zone market, don't forget to look for DFSA or ADGM FSRA recognition while choosing a forex broker.


4. Does Your Mainland Broker maintain a No-Interest Account? 

We have already discussed the obligation to trade according to Islamic Sharia Law, but there are additional local regulations. If your broker is a mainland company, it must abide by the "No Riba" (No interest) policy. It means it cannot offer clients trading on margin risk-free and guarantee an interest rate. It is also prohibited to provide loans against a strict interest rate. This is a fundamental rule of Islamic finance that all mainland brokers must follow. 


However, the free zone brokers are not required to comply with this law in the same manner. The free zone brokers are free to compensate in different ways.


5. Are you aware of the regulatory authorities that are protecting your deal?

You must know about the regulatory authorities overseeing your forex broker. In case of any inconvenience, you may get quick support or even raise a complaint if necessary. It is very beneficial to know your rights to prosper in trading.


Following are the descriptions of the regulatory authorities mentioned in this article:


Securities and Commodities Authority (SCA)

The SCA is the UAE's financial regulatory body for derivatives trading. This organization establishes the standards for securities and futures trading that other monetary authorities must follow. All other regulatory agencies must adhere to the SCA's parameters.


Central Bank of UAE (CB UAE)

The CB UAE is tasked with safeguarding the UAE's financial integrity. Currently, they regulate forex brokers across the UAE. However, this role will be reassigned to the SCA in 2022.


The Dubai Financial Services Authority (DFSA)

The DFSA serves as the financial regulator for Dubai's International Financial Centre (DIFC). As the UAE's leading financial center, this free zone is a popular location for forex brokers. As a result, more UAE brokers provide DFSA regulatory protection than those regulated by other UAE financial regulators.


Abu Dhabi Global Market Financial Service Regulatory Authority (ADGM FSRA)

The ADGM FSRA is similar to the DFSA, except it is responsible for the Abu Dhabi Global Markets Freezone. Despite being a comparatively new regulatory authority, it is expected to outdo other authorities soon due to high productivity and growth.


Conclusion


Protecting money is as important as earning it. So, do not make your cash vulnerable by choosing random brokers for high rates without checking out all relevant details especially, those of the above. Always remember that safe trade is smart trade. Best of luck with your forex trading career!