Dubai has emerged as one of the cheapest places to trade gold futures as margin fees on such contracts traded on the Dubai Gold and Commodities Exchange (DGCX) are much lower than on many more established markets around the world.
To trade one 100-troy-ounce gold futures contract on New York's Comex, traders must pay a margin, or fee, of about US$12,600 (Dh46,281). In Dubai a 32-ounce contract carries a margin of $1,300, meaning it would cost about $4,000 to trade the same quantity of gold futures as Comex's 100-ounce contract.
"DGCX has a very competitive margin structure compared with Comex," said Junaid Anwar Kahn, the head of trading at National Bank of Fujairah. "From 2008 to 2011 Comex raised its margins substantially to curb volatility and DGCX has taken advantage of that. DGCX has been trying to carve a niche for itself, and it has registered some very impressive gains."
Gary Anderson, the chief executive of DGCX, said that low margins were not "a primary goal" of the exchange but rather a by-product of Dubai's growing stature in the global gold trade, increased liquidity in the local market and the strict risk model employed by the DGCX.
The margin to trade gold futures on Mumbai's Multi Commodity Exchange is about 4 per cent, according to traders. Gold trading on the subcontinent has been hit since the start of the year by the Indian government's decision to increase gold import duties. India raised the tax levied on gold to 6 per cent from 4 per cent in an effort to reduce its record account deficit.
Traders in Dubai said the Indian move would more than likely lead to a greater shift of gold trading business from the subcontinent to the UAE.
Guarav Kashyap, the head of the DGCX trading desk at Alpari, a London-based foreign exchange firm, said that margins for trading gold futures were only cheaper than Dubai on the Tokyo Commodity Exchange.
"The margin requirement in Japan is between 1.8 per cent and 2 per cent at the moment," said Mr Kashyap adding that it was not a popular exchange among futures traders in this region.
The price of gold fell a little at the end of last week. The most actively traded contract, for April delivery, fell $4.40, or 0.3 per cent, to settle at $1,666.90 a troy ounce on the Comex exchange in New York.