Guide to credible online trading platforms with an established presence in the UAE

Dubai: Here’s a guide to credible UAE platforms for trading on stock markets within the country, in the Middle East region and international markets, detailing rules, margin rates, and other charges involved.

When seeking an opportunity to trade online in the UAE, you’ll need an online broker who’s regulated, and has a strong reputation among their clients. Online brokers typically offer a wide variety of trading accounts, including FX trading, CFD trading, Demo accounts and Islamic accounts. Here’s a look at each.

• FX trading: This is the process of exchanging one currency for another. Because exchange rates fluctuate, it’s possible to make money off the differences in value between currencies. The popularity of Forex trading has grown significantly in recent years, perhaps because the Forex market is one of the largest and most liquid in the world.

• CFD trading: ‘Contracts for Difference’ or CFD trading involves making transactions in derivative financial instruments. This allows traders to speculate on the future of underlying assets, such as a currency pair, stock index, or stock.

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• Demo accounts: Demo accounts are funded with virtual money rather than real finances. Usually, these accounts are used to practice trading or develop trading strategies. They can also help offer an insight into a trader’s platform.

• Islamic accounts: These accounts are specifically designed for traders who want to use an account that conforms to the demands of Sharia law.

When it comes to stock trading, if you want to trade listed securities on the Dubai Financial Market, you will need to apply for a NIN investor number. This number will open you up to trading on the ADX and DFM exchanges. After you get your NIN number, you’ll also need to find a broker that can trade stocks on either of the two exchanges. Remember that transactions for securities in the UAE are settled in AED.

What is a NIN (National Investor Number) number?

The National Investor Number (NIN) is a unique number given to you as an investor. It identifies your account at the clearing and Depository System (CDS) with the market which holds all investor shares. The National Investor Number is used to transfer shares to and from your account each time you buy or sell shares.

CMC Markets

CMC Markets is an UK-based online broker with an established presence in the UAE. It is popular for the large number of assets it offers, with are over 10,000 assets listed on CMC Markets’ platform, ranging from international and domestic stocks, to forex, cryptocurrencies and more.

Knowing what are ‘spreads’ and ‘PIP’?

As currencies are quoted in terms of their price in another currency, a forex ‘spread’ is the difference between the exchange rate that a forex broker sells a currency, and the rate at which the broker buys the currency.

A pip, short for "percentage in point" or "price interest point," represents a tiny measure of the change in a currency pair in the forex market. It can be measured in terms of the quote or in terms of the underlying currency.

A pip is a standardised unit and is the smallest amount by which a currency quote can change. It is usually $0.0001 for US-dollar related currency pairs, which is more commonly referred to as 1/100th of 1 per cent, or one basis point. This standardised size helps to protect investors from huge losses. For example, if a pip was 10 basis points, a one-pip change would cause greater volatility in currency values.

When it comes to fees, analysts widely observed that CMC Markets charge comparatively higher fees, including commission on certain stocks and fees for transactions to and from your account balance. Breaking down fees further, the broker charges a $10 (Dh36) minimum fee for stock trades and 0.7 minimum PIP minimum fee for forex trades.

Also, spreads on the key Wall Street benchmark S&P 500 (based on a five-point average system) are much higher than other instruments causing the majority of account holders to avoid using them. Interestingly, the Dow 30 spread is rated at 1.6 points, and the NASDAQ 100 is rated at 1 point, which are very similar to the industry standards.

However, CMC Markets platform takes zero commission on FX and CFD trading and also does not have a minimum deposit requirement. It does avail the facility of a demo or practise account, so users can try them out before use. A setback observed was CMC Markets does not offer Direct Market Access (DMA) to traders in the UAE.

What is direct market access (DMA)?

Direct market access (DMA) is a way of placing trades directly onto the order books of exchanges. As a result, DMA offers traders flexibility and transparency when trading. With DMA, a trader is able to interact with stock or currency exchanges, via a broker. But due to the risks and complexities involved, it is usually recommended for advanced traders only.

When you place a DMA trade with a CFD, the broker takes the position in the underlying market and you would receive a CFD. This is a derivative that enables you to speculate on the market price, but without having to own the asset in question.

Interactive Brokers

Interactive Brokers is one of the oldest and biggest US-based discount brokers (a stockbroker who carries out buy and sell orders at a reduced commission rate).

The broker is regulated by several financial authorities globally, including top-tier ones like the UK's Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC). As it has licenses from multiple top-tier regulators, Interactive Brokers is considered safe.

Like CMC Markets, it too is publicly listed on a stock market, which helps improve credibility among users by having to disclose financials openly, which improves transparency. Experts recommend the platform for traders looking for low fees and a professional trading environment.

When compared to CMC Markets on the easiness in opening an account, it is comparatively easier with it being entirely digital and the time taken to open an account with them is within 1-3 days. Like CMC, the Interactive Brokers also does not have a minimum deposit requirement. Also, although it does not have a deposit fee, there are no credit/debit options available, and transfer needs to be done via banks.

While it’s perks include low trading fees (commissions, spreads, financing rates and conversion fees) and availing a broad range of products and multiple credible research tools, the downsides are observed to be a complex process when opening an account with them and trading on its desktop platform, with high inactivity fee being a drawback as well.

When breaking down and analysing trading fees further, the platform has comparatively lower fees when trading stocks and ETFs (exchange-traded funds) on the market, in addition to lesser margin rates as well. The estimated commission on a $2,000 (Dh7,345) trade, assuming $50 (Dh183) is the price of a US stock, it costs an average of $1 (Dh3.6). Similarly, for a UK stock, it would cost about $7 (Dh25).

What is margin and margin rates?

Margin is the money borrowed from a brokerage firm to purchase an investment. It is the difference between the total value of securities held in an investor's account and the loan amount from the broker.

Buying on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset's value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor's account act as collateral.

Margin rate is the interest charged by brokers when traders purchase financial instruments like stock on margin and hold it overnight.

Saxo Bank

Denmark-based Saxo Bank’s online trading platform is considered widely popular as well. In the different regions it operates, like the UAE, its subsidiaries are present in the form of separate legal entities. The services offered by each entity might change slightly, especially in case of their fees and products available to trade.

Although it is recommended for its user-friendly trading platform, having considerably more research materials and a broad portfolio of products, drawbacks include a much higher minimum deposit, lack of a live customer service chat facility.

When compared to its peers, trading and non-trading fees (include charges not directly related to trading, like withdrawal fees or inactivity fees) at Saxo Bank are at par. The fees for forex, mutual funds and stock index CFDs are lower than usual, while they are relatively same for real stocks, ETFs or stock CFDs. and comparatively higher fees for trading bond, options and futures.

Some other perks include lower fees for its loyal customers, no withdrawal fees (withdrawing money from your trading account) and lower than usual fund fees (incurred by investors who hold funds). However, a downside, like most of its rivals, is that it charges for inactivity in your trading account.

The estimated commission on a $2,000 (Dh7,345) trade, assuming $50 (Dh183) is the price of a US stock, it costs an average of $10 (Dh36). Similarly, for a UK stock, it would cost about $10 (Dh36).

Trading Platform — What online trading broker provides better terms and charges lesser fees?

XTB

XTB is a global CFD and forex broker with headquarters in London and Warsaw. Like CMC and Interactive Brokers, it is a listed entity. XTB has low forex and stock index CFD fees. There is also no withdrawal fee for most transfers. On the other hand, stock CFD fees are high, and XTB also charges an inactivity fee.

The estimated commission on a $2,000 (Dh7,345) trade, assuming $50 (Dh183) is the price of a US stock, it costs an average of $10 (Dh36). Similarly, for a UK stock, it would cost about $11 (Dh40). When it comes to opening an account, it is observed to be hassle-free, and unlike most others, your account will be ready for trading on the same day.

However, a couple of other perks when it comes to trading on the account is that credit or debit card option is available and there aren’t any withdrawal or deposit fees, but one drawback is that comparatively few account currencies are accepted.

Experts recommend XTB for clients who prefer forex or CFD trading, and also want to enjoy deposit and withdrawal options along with fast account opening. While having a demo account has its perks among users as well.

AvaTrade

Ireland-based AvaTrade is a global CFD and FX broker founded in 2006. It is regulated by several financial authorities, such as the Central Bank of Ireland.

AvaTrade offers various deposit and withdrawal options which are free of charge. It also has diverse and user-friendly research tools.

On the flip side, the product portfolio is limited as it offers only CFDs for forex, stocks, commodities and cryptos. Inactivity fees are high. Forex trading fees are not lower than the average.

When it comes to non-trading fees and on the negative side, AvaTrade has an inactivity fee of $50 (Dh183) per quarter after 3 consecutive months of inactivity.

On top of that, after 12 consecutive months of non-use, an annual administration fee of $100 (Dh367) will be deducted. These inactivity related fees combined are high compared to AvaTrade's peers. The required AvaTrade minimum deposit is $100 (Dh367) for credit/debit cards and e-wallets.

If you are an experienced trader, you can request AvaTrade to open a Professional Trading account for you, where the leverage is higher than the Standard account. This requires that you have relevant experience in the financial sector, sufficient trading activity in the past 12 months and hold at least 500,000 euros (Dh2.2 million) worth portfolio value.