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I am living in the UAE and I have opened a trading account to buy and hold etfs. However, the etfs are mainly in U.S. Dollars, euros and Canadian dollars and I am using a dollar cost averaging approach in AED Dirhams. Unfortunately not much in the way of index funds here.

Also, unfortunately the currency exchange also eats into my trades (in addition to MER, trading commission). Any way I can bypass or reduce this so that I can buy and still make it profitable?

  • What currency are you starting with? – Chris W. Rea Jun 10 '15 at 19:25
  • As I am living and earning in the UAE, I would starting with AED Dirhams. – basement jaxx Jun 11 '15 at 12:26
  • You should edit your question and include that detail, as it is relevant. – Chris W. Rea Jun 11 '15 at 13:39
  • This is a direct question of "Where to find a Foreign Exchange broker in UAE". Google around, find a FX broker or money transfer agent, walk into their branch and ask for details. Start with this one uaeexchange.com/uae-exchange-currency-rates/ae/urss 0.13% spread from the pegged rate is very reasonable already. – base64 Jun 13 '15 at 10:05
  • There's no cost while holding, right? (Though currency exchange rates may fluctuate.) – keshlam Oct 29 '15 at 22:41
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You have two problems, money exchange commissions and currency risk.

Commissions are always exorbitant.

First you must find the cheapest way to get your money converted to the foreign currency and into your brokerage account. The absolute cheapest way may involve some research and financial institution maneuvering.

Also I'd forget about anything other than USD for the foreseeable future. Any other foreign currency will probably have higher commissions and a weaker market.

Once you have that down, you must avoid needlessly exchanging currencies. Keep a balance in the foreign currency, keep all dividends and capital gains there, and only take local money out of your brokerage account right before using it. That means of course that you need to keep enough local currency to pay taxes on any gains, etc.

As for currency risk, there are two solutions.

One solution is to buy your risk away using forex. You sell an amount of USD/AED lots that is mostly equivalent to your current investments and then just make sure you don't get margin calls. I'm not sure just how cheap your rates would be in the UAE, but, on average, your investments should still have positive returns.

The other solution is to just stop seeing exchange rate fluctuations as losses. If you had USD 100k and now you have USD 115k how are you losing money? Exchange rates can go the other way just fine, you know, and holding USD is a good way to hedge against your country going south.

  • I am inclined to go for the 2nd option as forex would imply that I know hwo the market will move, which I don't. The problem is that I am earning in Dirhams. Do you know how currency exchanges work i.e. is it a %, a flat fee etc? If I can figure how it works, then I can incorporate it into the total operating costs of buying and holding etfs. Does it get cheaper the larger the amount I exchange each time i.e. if I take 10,000 AED - will it be more expensive than 20,000 AED? If so, by how much? – basement jaxx Jun 11 '15 at 12:27
  • It depends. Usually they'll charge you at the very least a "spread" which means you can buy at 3.3 and sell at 2.7 while they'll trade at 3. They can also charge you other fees. And expect even larger fees if you are dealing with actual paper money. These other fees can be flat. Some institutions will have better conditions and even some preferential treatment for good customers. – gengren Jun 11 '15 at 12:59
  • You need to do your homework. But keep in mind that a bad choice will make a difference. It can be as bad as 6% vs 0.6% for a round trip. – gengren Jun 11 '15 at 13:02
  • Thanks gengren. Will be talking to them for a full breakdown :) – basement jaxx Jun 11 '15 at 17:29
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There are also currency hedged ETFs. These operate similarly to what gengren mentioned. For example, a currency hedged Japan equities ETF has an inherent short yen/usd position on it in addition to the equity position, so the effects of a falling yen are negated. Note that it will still be denominated in dollars, however. AED is pegged to the dollar though, isnt it? If your broker is charging you a crazy price maybe try again a different day, or get a new broker.

http://www.ishares.com/us/strategies/hedge-currency-impact

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