x Abu Dhabi, UAETuesday 25 July 2017

It might be best to stash your cash in UAE ... for now

Don't be in a rush to send your well-earned cash back home, keep an eye on the interest rates to make money.

Well, it had to happen, I suppose. As much fun as trading on the stock market with fake money is, sooner or later the excitement was going to lose its edge. I logged on this week to do battle with the FTSE 100, saw my one holding was continuing to bounce along nicely enough - up one day (a bit), down the next (a similar bit) - and I simply couldn't be bothered.

Well, I say "a bit". The truth is that following my triumphant celebrations last week, British gas giant BG, my sole golden holding, has deflated to the tune of more £1,000 (Dh5,882).

Hubris, you've already met Nemesis, I believe?

There's no point flogging it now; I'm convinced this is just one of those downward swoops before the next upward whoosh I predicted last week. The next few days will tell.

Meanwhile, like a jaded bungee jumper tempted to strap on a chute and leap out of an aircraft, I found myself looking for something bigger, faster, more dynamic - and more dangerous.

And, in Forex, I have found it.

As fine and dandy as The Share Centre's online trading platform is, the one thing it won't let you do is trade in money, which is probably just as well. Forex trading is all the rage - it is, without doubt, the day-trading of today - but, and even more so than trading in shares, it presents the stumbling amateur with a complex landscape, fraught with hidden dangers.

I mean, seriously. Pips, pairs, spreads, margins, leverage? Base and counter currencies?

I have a social rule: whenever I meet someone who, like me, speaks English but nevertheless manages to utter three or more words in one sentence I simply don't understand, I shuffle off rather than try to bluff it out. It saves time and humiliation.

The same rule should also apply to any kind of financial transaction. If you don't understand it, don't engage with it. After all, social embarrassment is one thing; economic ruin quite another.

Nevertheless, the temptation to run wild in this new playground is strong - and is inspired by having spent almost three years in the UAE.

The Share Centre has an opposite number in the Forex world: Forex.com, which, like The Share Centre, allows the newcomer to set up a practice account. And, as I struggle through the site's online guide for beginners, it suddenly dawns on me: I'm not a beginner. I've been dealing in Forex ever since I arrived in the UAE. It's just that I've been doing it so very, very stupidly.

You too, probably, so read on.

The dirham is, of course, tied to the US dollar, so the many Brits here who, like me, regularly send money home keep a close eye on the fluctuations between the dollar and sterling - and I suppose the same can be said of many other expatriates whose home currencies move against the dollar.

Mostly, we just groan when the dollar weakens - meaning our dirhams buy fewer pounds - and cheer when it strengthens, but perhaps we should be doing more than this? After all, with a currency pairing as volatile as the pound-dollar has been over the past few years, there are significant amounts of money to be made - and lost - in the trading cycle.

For instance, if you came to the UAE in 2008, the amount of dirhams you would have needed to send home to stash £1 in your UK bank account would have varied wildly, from Dh7.33 at the start of the year to a low in December of Dh5.32.

Most of us, of course, send our money home monthly - as soon as we are paid. This feels like the right thing to do - psychologically, it's rewarding to see the money piling up back home. But perhaps it is also the stupid thing to do.

Let's assume you were sending home Dh10,000 a month throughout 2008. In the months when the rate was at its highest, this would have bought you £1,364. At its lowest, however, you would have banked £1,879 - a difference of more than £500 a month. Over the year, this represents a range of possibilities from £16,368 to £22,548 - a difference of £6,180. In other words, not a bad pay rise or bonus.

In fact, over the entire year the exchange rate averaged out at Dh6.81 to the pound, which means that the Dh120,000 you sent home month by month in 2008 would have bought you a total of £17,621 - still almost £5,000 less than you could have had if you'd played it smart.

So how could you play it smart?

By stashing the money here in the UAE, perhaps in an interest-yielding term-deposit account - HSBC, for instance, offers a not-to-be-sneezed-at 3.7 per cent a year for a minimum deposit of Dh10,000 - and waiting for the right rate to come along.

Can you guarantee it will? No, but looking at the price movements over the past few years, and considering the volatility of the two currencies, it seems highly likely. You might have a long wait, but when it happens it would be worth it and, if you are planning to stay for a few years, what's the rush?

Take this year. Since January, the variation in rate has not been as wild as in the past, but it is still there for the exploiting: from a high of Dh6.01 to a low of Dh5.26, averaging out at Dh5.66.

What you need, of course, is a target rate - a rate that you consider to be a good deal, and which you can be reasonably sure is going to crop up.

Unforeseen economic circumstances aside, the best indicator is history, and a review of the dirham-pound exchange rate over the past three years to date gives us three figures to mull over: between November 16, 2007, and this week, the rate has averaged out at Dh6.14 to £1, with a high of Dh6.66 and a low of Dh5.24. If you saved your Dh10,000 a month for three years, that would give you a total pot of Dh360,000; and according to past performance, depending on when you bought your sterling, that could earn you anything from £54,054 to £68,702 - a not inconsiderable difference of £14,648.

So much for the real world. How hard can fantasy Forex be? Watch this space; I'll let you know. It could be the lifeboat I need if BG continues to settle in the water.

 

jgornall@thenational.ae