Forex trading requires a calm head

The Life: Forex trading is gaining popularity in the UAE and some of the investors say uncertain markets is a real opportunity to make money.

From left: Sunil Sawlani, Mooda Shabani and Benny Jacob compete at the Arab Forex Championship in Dubai last week. Razan Alzayani / The National

For Benny Jacob, 45, a former electrical engineer based in Dubai, staying calm is the key to trading in foreign currencies.

He is a foreign exchange (forex) trader who speculates on movements in exchange rates, much like others would speculate on movements of stock prices. He often takes advantage of even small fluctuations in exchange rates. Market volatility is where he and the growing band of retail traders make their money.

Because of the unpredictability in currency markets smart forex traders - also called investors - need to have a plan. They need to set a target as to when they want to buy and sell their currency and, more importantly, they must adhere to it.

"A great trader will always stick to his plan and will have a good handle on his emotions regardless of the potential gains he might experience at the very beginning [of trading]," says Gaurav Kashyap, the head of the Dubai gold and commodities exchange desk at Alpari Middle East DMCC, a forex broker.

Mr Jacob is among a rising number of retail investors taking up forex trading. It is gaining popularity in the UAE, with brokerages reporting a growth in clientele over the past couple of years. As the euro zone, the US and Chinese markets slow and governments try to spur growth injecting cash into the economy, some forex traders, who deal with their personal accounts, follow news closely and warn against playing with big money.

"Compared with global flows of US$4.5 trillion [Dh16.52tn], regional trading is still at a low level," says Max Knudsen, the chief market strategist at ADS Securities based in Abu Dhabi, which provides platforms for forex traders.

"Our trading has reached to $5 billion a day and we ... can only see the market growing."

Mr Kashyap estimates there are about 200,000 forex traders in the Middle East and North Africa.

The uncertainty in the world's largest markets allows forex traders such as Mr Jacob the room for playing around with currencies.

"Wherever you have fluctuations, you try your luck there," Mr Jacob says. There are indicators to watch out for, such as US Federal Reserve decisions and reports from the European Central Bank traders. "Fluctuations with high volatility - hence high return - happen mostly at the time of [economic policy] announcements," says Bruno Lachaux, a one-time aerospace engineer turned trader.

Natural disasters, such as the Japanese tsunami and earthquake in March last year, also spark market volatility and generate opportunities to make money.

As a result, many retail traders such as Mr Jacob say they would never go back to their day jobs again. Trading gives them cash flow and flexibility.

He has been forex trading for two years. His day starts at 2am, checking the Australian dollar and Japanese yen as soon as those markets open. He next checks his positions at 10am when the UK market opens and at 4pm when Wall Street wakes up.

With the software available, a forex trader doesn't need to sit in front of the computer all the time. He or she can set a stop limit, say at $1.45 to €1, or a profit limit — say at $1.65 to €1. But he or she needs to follow the news, including politics and even the weather to be a good at making money from forex trading.

Natallia Razlivanova, the general manager of Alnor Media Group, returned to forex trading a year ago. "I am tracking news all the time. Sometimes it takes 24 hours, sometimes I am scared to go to sleep," she says.

Mr Jacob, Mr Lachaux and Ms Razlivanova gathered in Dubai this month for the third Arab Forex Championship.

It was held in the UAE for the first time and involved about 200 participants, a majority of whom were amateurs. Of these, the top 15 were selected for awards, based on their profit margins and risk management.

For many of them forex trading started as a hobby. The top three traders at the championship will now compete in a Middle East-wide competition for the title of Best Arab Forex Trader 2012-13.

To cut the tension, Mr Lachaux, who got into forex trading to safeguard his savings from inflation, suggests traders give themselves a safety net to minimise potential losses from the bets that do not unwind in the right direction.

"We give ourselves a threshold so that we do not lose everything," he says.

So what makes a smart trader?

"Control your emotions and do not trade in big money. And learn by taking losses," Mr Jacob says.