Although considered risky derivatives, CFDs are extremely flexible and useful asset types for online financial trading. These derivatives are purely speculative and allow traders to instantly buy or short sell the underlying asset. Especially flexible are crypto CFDs that allow traders to instantly buy and sell cryptos unlike real cryptos that require network confirmation and fees.
CFD trading has surged worldwide, including the Middle East where innovations are welcomed in the fintech sector. This trend reflects the region’s digital transformation and growing focus on investment. Let’s analyze what CFD trading is and why it got so much more popular lately in the Middle East.
CFD trading explained
CFD trading refers to financial trading using Contracts for Difference (CFD) which is an agreement between trader and broker to exchange the difference in an asset’s price from open to close. In simple words, a trader just opens a buy or sell position on an asset such as gold and instead of trading with spot gold, they just trade its CFD like the original asset. From the trader’s perspective, there is no difference between CFD and actual underlying asset, other than CFDs tend to have higher execution speeds, which is very important for intraday short-term strategies.
To open a position (buy or sell) using a CFD, traders are required to put up a required margin, which is automatically locked away until the trade is closed. CFDs are among the most speculative asset classes as they offer higher leverage opportunities. Brokers with CFDs typically offer 1:50 and beyond leverage, which enables traders to control large position sizes at a small budget.
Global CFD landscape
In the beginning, CFDs were super popular among European and Australian financial traders who needed to have fast execution. CFDs now evolved and account for trillions of dollars in daily turnover, especially when we consider foreign exchange and commodities markets (currencies, metals, energies, etc.). CFDs have low transaction costs, are tradable 24/5 for FX and commodities and 24/7 for cryptos. This enables traders to use CFDs even for diversifying their portfolios, which is super flexible for experienced traders.
Rise of CFDs trading in the Middle East
The Middle East online trading sector is expected to hit 1 trillion dollar valuation by 2025, which is an impressive number. The trend is supported by sophisticated broker platforms which are open for access in Dubai, Abu Dhabi, and Riyadh. The amount of trading account openings have surged in volumes lately at GCC-licensed brokers. The Gulf Cooperation Council is a powerful union of Saudi Arabia, United Arab Emirates (UAE), Kuwait, Qatar, Oman, and Bahrain. It was founded in 1981 and has a headquarters in Riyadh, Saudi Arabia. Since its purposes include economic cooperation, this surge is natural.
Key reasons of CFD popularity in the Middle East
The rise of CFDs popularity in the Middle East region was not just a coincidence. There were several specific reasons supported by several key initiatives introduced by Saudi Arabia and other countries which promoted online financial trading and caused its popularity to rise.
Digital adoption
Modern smartphones are super advanced and allow users to conduct all financial activities from the palm of their hand. These include online payments, utility payments, investment, banking, and financial trading transactions. Saudi Arabia was also among countries that promoted digital transformation and supported its fintech sector by introducing a FinTech Labs where innovations in the financial sector were incentivized by new startups.
Wealth and demographics
The young and wealthy population of Saudi Arabia often seek passive and active income streams apart from oil revenues, which makes CFD trading a very attractive venture. This is especially true for the Middle East as it is easier to conduct a quality fundamental analysis for oil and trade on oil CFDs with low spreads.
Oil volatility
Geopolitical events such as current wars make energies such as oil very volatile, opening up many trading opportunities for CFDs traders. Since CFDs enable traders to both buy and sell the underlying asset, the direction of the price is not a concern for traders.
Regulations
When it comes to regulations, the financial trading sector is very well overseen in the Middle East, especially in Saudi Arabia, which is a leading country. Dubai is a very popular destination for financial brokers and traders because of its status and regulations.
DIFC Dubai
The licensing in Dubai is mainly under the Dubai Financial Services Authority in the DIFC free zone, mandating capital adequacy, segregation (client money should be held in other accounts), and conduct standards. These rules ensure financial traders are protected and brokers that offer CFDs are transparent and client-oriented.Global CFD landscape
In the beginning, CFDs were super popular among European and Australian financial traders who needed to have fast execution. CFDs now evolved and account for trillions of dollars in daily turnover, especially when we consider foreign exchange and commodities markets (currencies, metals, energies, etc.). CFDs have low transaction costs, are tradable 24/5 for FX and commodities and 24/7 for cryptos. This enables traders to use CFDs even for diversifying their portfolios, which is super flexible for experienced traders.
Rise of CFDs trading in the Middle East
The Middle East online trading sector is expected to hit 1 trillion dollar valuation by 2025, which is an impressive number. The trend is supported by sophisticated broker platforms which are open for access in Dubai, Abu Dhabi, and Riyadh. The amount of trading account openings have surged in volumes lately at GCC-licensed brokers. The Gulf Cooperation Council is a powerful union of Saudi Arabia, United Arab Emirates (UAE), Kuwait, Qatar, Oman, and Bahrain. It was founded in 1981 and has a headquarters in Riyadh, Saudi Arabia. Since its purposes include economic cooperation, this surge is natural.
Key reasons of CFD popularity in the Middle East
The rise of CFDs popularity in the Middle East region was not just a coincidence. There were several specific reasons supported by several key initiatives introduced by Saudi Arabia and other countries which promoted online financial trading and caused its popularity to rise.
Digital adoption
Modern smartphones are super advanced and allow users to conduct all financial activities from the palm of their hand. These include online payments, utility payments, investment, banking, and financial trading transactions. Saudi Arabia was also among countries that promoted digital transformation and supported its fintech sector by introducing a FinTech Labs where innovations in the financial sector were incentivized by new startups.
Wealth and demographics
The young and wealthy population of Saudi Arabia often seek passive and active income streams apart from oil revenues, which makes CFD trading a very attractive venture. This is especially true for the Middle East as it is easier to conduct a quality fundamental analysis for oil and trade on oil CFDs with low spreads.
Oil volatility
Geopolitical events such as current wars make energies such as oil very volatile, opening up many trading opportunities for CFDs traders. Since CFDs enable traders to both buy and sell the underlying asset, the direction of the price is not a concern for traders.
Regulations
When it comes to regulations, the financial trading sector is very well overseen in the Middle East, especially in Saudi Arabia, which is a leading country. Dubai is a very popular destination for financial brokers and traders because of its status and regulations.
DIFC Dubai
The licensing in Dubai is mainly under the Dubai Financial Services Authority in the DIFC free zone, mandating capital adequacy, segregation (client money should be held in other accounts), and conduct standards. These rules ensure financial traders are protected and brokers that offer CFDs are transparent and client-oriented.
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