forexbroker.ae logo

ForexBroker.ae

CFD Trading in the United Arab Emirates

In the United Arab Emirates (UAE), investing money in contracts for difference (CFDs) is actually more common than investing in genuine assets that are listed on the stock markets.

What exactly are CFDs?

According to Investopedia, a contract for difference (CFD) is a contract between a buyer and a seller in which the buyer agrees to pay the seller the difference between the current value of an item and its worth at the time of the transaction.

This difference is calculated by subtracting the value of the item at the time of the transaction from the current value of the item.

If an investor trades CFDs on a company's stock, does that investor truly own the company's stocks?

No, a CFD investor never actually owns the underlying asset or the security; rather, he or she makes a profit (or suffers a loss), depending on how much the asset's price changes over the course of the contract.

What are the benefits of trading CFDs or having your own position in them?

CFDs make it possible to gain access to the underlying security asset at a cost that is lower than the cost of buying it directly.



What are some of the drawbacks associated with trading CFDs?

CFDs have the disadvantage of instantly lowering an investor's initial position, which is dropped by the size of the spread upon opening a CFD trade.

Is CFD trading halal?

The level of religious observance an individual possesses is the primary factor in determining whether or not trading CFDs is permissible under Islam.

By the way, the majority of brokers in the modern day provide interest-free or riba-free CFD and Forex trading accounts.

These accounts are comparable to the financial products that are made available through Islamic banking in the UAE.

Therefore, if one considers it from a religious point of view, there is not much of a problem there.

Please keep in mind that not everything in this day and age can be viewed and experienced through the prism of one's religious views. Considering this is extremely important. In life, it is essential to be as realistic as possible. Therefore, trading CFDs ought to likewise be considered within the same framework.

Which nations have made CFD trading illegal?

Trading in contracts for difference (CFDs) has been made illegal by the governments of both the United States and Brazil.

Is it permissible to engage in trading CFDs in the UAE?

Yes. At this time, the United Arab Emirates does not have any laws that restrict its citizens from engaging in online CFD trading.

Which nations have passed legislation to legally permit trading in CFDs and also regulate this product?

As an over-the-counter (OTC) financial-markets product, contracts for difference (CFDs) are recognized in a number of significant trading nations, such as the United Kingdom, Germany, Switzerland, Singapore, Spain, France, South Africa, Canada, New Zealand, Hong Kong, Sweden, Norway, Italy, Thailand, Belgium, Denmark, and the Netherlands.

These nations also include the United States of America. Brokers that sell contracts for difference (CFD) trading products are subject to regulation from each of their respective governments.

When trading CFDs, do new or inexperienced investors run the risk of losing money?

Yes. In point of fact, more than eighty percent of people that invest in the CFDs end up losing all of their money in the long run.

Do brokers of CFDs engage in dishonest practices?

When opposed to a conventional broker that exclusively trades in securities that are listed on a stock market, the chances of getting ripped off by a CFD broker are significantly increased.

Because the majority of CFD brokers act as market makers, they have the ability to manipulate the pricing of the underlying CFDs at any moment to their own benefit. This may turn a winning trade for an investor into a losing one.

What fees are involved in trading contracts for difference (CFDs)?

In general, there is no commission charged while trading currencies and commodities.

On the other hand, brokers will often take a commission from the sale of stocks. For example, the financial services company CMC Markets, which is based in the United Kingdom, levies fees beginning at 0.1 percent, which is equivalent to $0.02 per share, for U.S. and Canadian-listed shares.

You will be charged a fee for each trade, as the opening deal and the closing deal are considered to be two separate transactions.



Do I have to pay a price to keep my CFDs overnight if I choose to do so?

Yes. Due to the fact that overnight holdings in CFDs are considered investments, you may be required to pay a finance fee if you maintain a long position (and the provider has lent the trader money to buy the asset).

When a position is held open for an extended period of time, traders frequently accrue interest charges.

How exactly does a trade in a CFD take place?

Investopedia provides the following illustration of a contract for difference trade:

Should you trade CFDs or should you avoid doing so?

Trading contracts for difference (CFDs) comes with a number of benefits, such as reduced margin requirements, easy access to markets all over the world, legal exemption from shorting and day trading, and cheap or no transaction fees.

Which online CFD trading platforms offer the most favorable conditions for investors residing in the UAE?

Olymp Trade; IG Markets; Avatrade; Plus500; City Index and CMC markets are often considered as the best online CFD brokers, by many professional investors and beginner traders living in the United Arab Emirates.

 

Reviewed by Arpita Singh

Arpita SinghArpita Singh is the main writer at ForexBroker.ae. As a senior investment professional with 10+ years of experience working at top-tier Private Equity and Sovereign Wealth Fund; she is also responsible for fact-checking concepts, reviews, and related details about brokers and exchanges listed on this website. Full Bio.