Is Dubai a new hotspot for fintech developers?
In May 2021 the UpTrader team visited the first fintech exhibition in Dubai after a forced 1.5-year break. During our 1-week visit we noticed that a lot of our clients and fintech companies opened their offices in Dubai. So we decided to do a small research of the trend and figure out why the Arabian night attracts the financial industry. We were wondering whether it is a good idea to open a representative office in the Emirates or not?
So there are at least 3 reasons why this might be interesting.
Real estate market in Dubai now
The real estate market in Dubai has been falling since 2014. And according to some expert estimates, it has not yet reached the bottom. In addition to Dubai’s own market problems, the global pandemic caused the prices to go down. In general, at the moment the market is still trying to deal with the consequences of the flooding of real estate objects that happened in 2014. At that time frozen construction projects began to be completed and released to the market after a protracted credit crisis in 2008. Eventually supply exceeded demand, and continues to exceed it to this day.
This year the market has fallen 8% for purchases and 12% for rentals, and continues to fall. New construction projects are flooding the market this year. Now prices are 30% lower than 2014 prices. However, to reach 2010 prices, according to experts, the market needs to lose another 20%.
In May 2021, our team had meetings in some Business Bay towers and we were impressed by the desolation of these giants. One can say wind and sand are walking through the unfinished offices. On the one hand, all this makes a depressing impression and reminds us of post-apocalypse from Blade Runner 2050, on the other hand, really low prices and rather lively business activity in Dubai attract the attention of business and make you think about the prospects for opening an office there.
Good bye Cyprus?
For the last two decades, Cyprus has been the traditional place for fintech developers. The offices of many well-known brokers were located there, as well as satellite companies serving them: software, legal, PR and advertising companies. Cyprus had become the forex capital for many years. That became possible because of Cyprus financial regulator, the only European regulator whose license at one time cost reasonable money and leniently regulated broker activities. Different types of brokers could get a license, and they did. One of the conditions for getting a license was the opening of an office in the country and the employment of a certain number of Cypriots.
The maintenance of such a small office costs 20–25 thousand euros per month. It could number in the hundreds of thousands for a bigger one. In general, the years were rich, and the morals in Forex were quite free.
However, since about 2015, the legislation of European countries has slightly begun to tighten the rules for financial brokers. Cyprus did not stand aside and soon obtaining a license in Cyprus became as difficult as in other European jurisdictions. As a result, brokers stopped getting Cysec’s licenses, followed by the closure of offices and the migration of companies. And there was not much sense left for the fintech service companies to open their representative offices there. But we are wondering where is the new capital of forex now?
Is Dubai the business and financial center of the future?
The United Arab Emirates have long been working on diversifying the economy, building a model based not only on the export of raw materials, but also on other industries, including developing business tourism. For this, in addition to the construction of new areas, the authorities create attractive tax conditions for business. So the United Emirates has 5 tax-free economic zones (according to the number of the emirates). Companies registering a business there must pay about 12 thousand dollars a year, but their activities are free from tax. What other benefits does a business have by opening an office there? As we said, 0 taxes. Up to 5 employees of the company can get a residence permit.
According to current prices, a square meter costs an average of $25 per month. Maintaining a small office in Dubai of about 70 square meters costs about $ 2,500 per month. Another crucial benefit is an access to Arab banks. So even unlicensed
brokers who have problems with European banks can count on the loyalty of local ones.
The Emirates attract different types of business via the annual international exhibitions. It makes Dubai an attractive hub for fintech.
So experts say that real estate prices in the Emirates will hit the bottom by 2022, so maybe now is the best time to start looking for offices or apartments with a gorgeous view of the business center or the sea.
It is now possible to log in to UpTrader Trader’s Room via Telegram messenger. Now each broker can set up this feature for their clients in a few clicks in the Admin interface.
“Telegram is known for its strong position regarding free speech protection. That is why it has become the most popular messenger in the crypto community. UpTrader’s clients live in different countries and for many of them free speech means a lot, so they prefer to use Telegram. In the latest months Telegram popularity has been growing among lager groups. In respect to that we have made convenient authorization in the UpTrader Forex CRM.” - commented CEO UpTrader Vasily Alexeev.
More questions left? Contact us [email protected]
The conflict between Russia and Ukraine revealed a global crisis of confidence and strained relations between countries. The US is talking to any opposition only to imply sanctions: "If you do not do as we say, we will impose sanctions against you, if you do as we say, we will lift the sanctions imposed on you earlier".
This rhetoric cannot help but anger world powers like China or Turkey, who see themselves as entitled to pursue their own policies. Markets react sensitively to each statement; country and sector indices, stocks, and currency are turbulent. While some are rising, others are falling. How does it affect the brokerage business?
Market turbulence and crises always attract investors. Some venture in to preserve their capital, others want to earn more money. In the last month, UpTrader saw an increase in the number of requests from companies in Asia which focus on trading gold and currency pairs. Gold is rising as a safe haven for investors during the storm. Others are looking at the energy sector, as Brent rose to $129.47 a barrel as a reaction to sanctions against Russia. Stock markets are falling. The currency market is far from being calm.
In addition, cryptocurrency and digital currencies are booming. Russia decided to make cryptocurrency legal in January 2022. Taiwan, on the other hand, introduced a ban on cryptocurrency payments, as China did a year earlier. But China's digital yuan is being successfully tested. Experts believe that it can successfully compete with the dollar in international payments in commercial exchange. After all, the dollar is losing the vote of confidence from many countries due to overusing sanctions.
All these developments are encouraging investors to open accounts with brokerage companies. An important trend that we noticed over the last couple of years is that small local companies are earning more trust and interest from customers while the giants are losing ground. As we can see, this is due to the fact that local companies are much more client oriented and aiming to meet the needs of their small target audience. They are also very flexible and quick to adjust to changes in trends, which big brokers do with a big delay.
It is common in Asia for former big Forex broker IBs to start their own brokerage companies. They have a reputation and loyal clients. To open a company, all they need is a MetaTrader server (recently, it seems, everyone only buys MT5) and Forex CRM. Separating from their former bosses allows them much more flexibility to serve clients and not depend on the policies of another company. All Asian clients who came to UpTrader in the past few weeks are asking for MT5 and Forex CRM.
Finally, working with Asian clients has always been simple and straightforward for us. This is another feature that makes working with Asia quite promising. And the time to enter the market is perfect, because it looks like the beginning of a new era.
Does it make sense to buy external forex or crypto liquidity when an internal liquidity model, or so-called B-book, already has a great track record? Some companies decided a long time ago to work strictly by the B-book, others stick to the A-book, while some monosystem partisans are gradually switching to a hybrid scheme. Which option is the best?
Forex or crypto Liquidity
Liquidity is the ability of a currency pair to be sold quickly at close to market prices. That is, liquidity translates into the saturation of supply and demand and the ability to execute trades quickly at the best prices. Liquidity can be internal and external. B-book means internal liquidity, and this liquidity is provided by the company itself or its clients. If a broker has many clients, their trades are mutually covered, and the broker just has to monitor the total sum. As a rule, each individual client does not affect it too much. If the broker acts as a counterparty, they have to pay on profitable trades themselves. This model is rather vulnerable for many reasons. A-book means external forex liquidity. It has high demand/supply characteristics and better prices, since orders are routed to external providers who have a large pool of traders and therefore a greater order execution capacity.
B-book, or internal forex liquidity: pros and cons
Many brokers mistakenly believe that B-book is the most profitable business model, as it provides maximum profit. The orders are never placed on the market, which means that all the money clients lose stays with the company. It sounds very attractive: someone will get that money anyway, why not keep it for yourself? On the one hand, all of it is true, but this model has one significant drawback. If a client earns money, the broker will have to pay it “out of their pocket”. And as we already know, brokers working with B-book offer very high leverage so that the payouts are significantly higher compared to the initial deposit amount. To avoid paying, the broker can dispute the trade and not pay the profit. They can also manipulate the prices to help the trader lose. It is a dirty job that quickly becomes obvious. In these cases, the broker loses its reputation and clients and may as well leave the market for good. That is why in-house crypto or forex liquidity is only suitable for big brokers who have a large order flow, their own wide internal market and enough funds to pay fairly on profitable trades. A small start-up can end up with big financial losses thanks to this model. If they decide to cheat, they can also lose their reputation and clients. Finally, this model has a significant disadvantage in that principal revenue earnings vary from month to month, depending on the market. That is, it may be 30 or 70%... of losses per month.
A-book, or external forex liquidity: pros and cons
A-book is an external liquidity model, i.e., the broker brings all the trades to the market and earns on spread and swaps. They get money from every trade made by the trader. Another advantage is that the broker does not care whether the transaction is profitable or not. They receive the same commission on each transaction. Consequently, the broker is not interested in playing against the trader. The most important thing for a broker in this situation is to increase the trading volume: the more trades are made, the more money they make. It is a classic win-win model with predictable profit and minimal reputational and financial risks. It is the safest choice for a first-time broker: you only pay for the volume, which makes the business manageable and cost-effective. At UpTrader, we also offer a volume-based CRM fee which allows you to start a company with literally a few thousand dollars in your pocket.
Hybrid model: A-book and B-book
Brokers are increasingly opting for a hybrid operations model. After all, from the point of view of financial markets, it is reasonable to keep traders with small deposits on B-book because their profitable deals will not cause the company much financial trouble while unprofitable ones will turn into income. If a client has a lot of funds, however, any of their profitable trades can exceed the broker’s financial capacity. In this case, it is better to transfer that trader to A-book. Alternatively, such clients can be partially transferred to A-book in order to reduce risk exposure.
The advantages of the hybrid model are obvious: first, competent account management allows the company to receive profit both from commissions and from losing trades without risking its own funds. The broker fulfills its obligations to clients, thereby earning loyalty and building reputation. It is important to understand, however, that clients generally do not care whether the trades are brought to the market or not. They pay much more attention to trading conditions and profit payments. If a broker does everything correctly, all parties win. The only downside is that you will need competent risk managers. There are some on the market, but they are usually either employed by other companies or quite expensive. Therefore, you have to choose the hybrid model responsibly.
If have any questions related to forex or crypto liquidity, or if you need liquidity, contact UpTrader team please using our registration form and we will give you the best offer.