Currency trading volumes surge as investors avoid bonds and equities

Foreign exchange traders in the UAE have a boom time as banks, traders and investors have flocked to deal in major foreign currencies and to hedge against foreign currency risk that caused severe financial losses to many companies in the region.

An online retail foreign exchange dealing subsidiary of leading German bank, Deutche Bank, has reported a 501 per cent increase in the forex trading volume across the Middle East for the first quarter of 2009, compared to the corresponding period in 2008.

This compares with just 37 per cent increasing in foreign exchange trading volume globally.

A statement from dbFX said the reason for the surge in foreign exchange trading volume is due to investors' preference for currencies against other investment options like bonds and equities.

According to the company, Middle East is emerging as the best performing region for its forex dealing business, with investors flocking to major currencies like euro/dollar, pound/dollar and dollar/yen currency pairs, which accounted for 80 per cent, 10 per cent and 1 per cent respectively of all the Middle Eastern dbFX trading during the quarter.

Volumes for the euro-dollar pair has increased by more than 1,250 per cent, said the company. These three currency pairs accounted for 96 per cent of all traders in the first quarter of 2009.

Betsy Waters, Global Director, dbFX.com, said: "From a trading perspective, the carry trade has been a staple of foreign exchange traders portfolios for sometime and has brought many new entrants to the market. However, traders have begun moving to alternative strategies such as valuation trades, where investors seek out seemingly undervalued currencies. The Middle East has emerged as one of the fastest growing foreign exchange markets."

Pradeep Unni, Senior Analyst, Richcom Global Services DMCC , said the foreign exchange trading volume has been going up and the volume growth has been considerable in Indian currency. He said: "As the equity and commodity markets crashed, currency trading volume has been growing up because the DGCX rupee contract is the only facility to hedge against the rupee outside India. DGCX allows small contracts valued Rs1 million where as an international rupee contract would involve $1 million."

He said many investors are interested in currency dealings because they have to invest only $800 (Dh2,936) margin money per contract of Rupees one million.

He added that many investors who have invested in Indian stock markets are hedging against the Indian currency as a precaution.

He added that the volume of foreign exchange trading, especially in euro, dollar and Indian rupee." "Whenever the currency exchange rates are volatile, the foreign exchange trading volume becomes high."

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