United Arab Emirates

©2016 by Bogleheads® UAE Local Chapter.

Dubai Meetup 7: Overview of Online Brokers for UAE Expats - by Alex (including link to the presentation slides)

On 21 of January, Alex gave us an amazing and humbling presentation summarizing his experience with online stock brokers since he started investing as an expat in the UAE in 2009.

Alex is a cautious investor. He is very well aware of the past issues and challenges that online brokers have faced and he takes this into account in his approach to investing.

 

In his presentation, Alex presented a number of risks that come with investing in the stock market, as well as his strategies to mitigate them (mainly well thought diversification across geographic markets, sectors and brokers).

 

Alex also warned the audience against the temptation to sign up for expensive saving and investment plans sold by the majority of financial advisers and banks in the UAE. He emphasized that the recommended approach to investing is to use online discount brokers to buy and hold diversified low cost index ETFs following the Bogleheads® Philosophy. 

 

Alex then provided an overview of all the online brokers he has worked with, highlighting the main pros and cons for each of them. All the details are provided in his presentation.

 

Click here to view the presentation

 

Here are some additional notes summarizing the presentation as well as some of the discussions we had during the meetup.

 

Intro

Alex - German

Here since 2002

Started investing since 2009

 

1st experiences

1st broker - Flatex / E trade - focussed on US and Germany

Had some doubts and shifted to US Schwab and others

Had challenges with brokers, both opening and maintaining accounts in US / Germany - they want residents due to taxation and other issues such as acquisitions

 

Recommendation- use multiple brokers, rather than stock with 1

 

Crises that affected the brokers - big losses

E.g. Cyprus crisis, Grexit, Swiss franc eg Swiss franc affected Alpari, interactive brokers etc

 

Considerations

Eur - 100k cash, if bank fails, 100k will be kept, but considering Cyprus crisis - don't even trust that.

US is similar - e.g. USD 250k

Consider banking jurisdiction and bank - spread investments out

Is this bank insured?

Currencies, brokers and countries may fail

Account can get hacked - may not have latest tech

If broker is acting under another company - are they safe?

Brokers may amend agreements e.g. Schwab - closed UAE accounts

 

Recommendations

Invest in multiple currencies Eur, usd, home currency

Invest in different geo markets e.g. US, EU, ME etc

Invest in different sectors unless investing in broad markets

Using multiple brokers and clearing houses in various countries - don't put all eggs in 1 basket

 

What not looking for

Savings and investment plans, offshore pension scheme, local brokers (for day trading charging high commissions), wealth management solution, structured products, CFDs, forex, binary options, futures - not what you are looking for as risky/ expensive

 

We are looking for

Low cost, online brokerage for buy and hold / LT in ETFs across various exchanges and currencies

 

Considerations

What happens if you leave the UAE? Can you still access your account?

Check tax agreements between countries

Claims in case of death eg may freeze account, wills, inheritance taxes etc

Don't need advanced trading platforms or real time data for bogleheads approach (useful for a limit buy - some brokers offer it for free)

Stamp duty e.g. 0.15% such as Swiss quote for Swiss brokers

Commission free etfs - marketing gimmick as interesting ones are not commission free e.g. Not very liquid, spread is higher, expense ratios may be higher. Check etf do.com - shows liquidity, expense ratios etc and show you more interesting ETFs

 

Where to invest

US market/ domiciled ETFs/ stocks

Very low cost trading with flat free trading available

Very small bid/ ask spreads as being traded frequently bs what you get in Europe

Go for etfs with large value in assets under management

Convenient trading hours - evening UAE time

Dividends have to be distributed and so 30% tax

Check double taxation agreements and inheritance taxes e.g. US

So you could reinvest dividends manually

 

EU market/ domiciled ETFs/ stocks

If Ireland/ Luxembourg domiciled - 15% withholding on dividends

Also, find distributing and accumulating funds - i.e. Manually reinvest or auto reinvestment

Better to go with the latter to reduce taxes

Could go for growth funds as dividends not high and so reducing costs

 

Avoid buying Etf in a different currency as you will pay forex when you buy and sell

You can find funds that are denominated in the currency you will retire on

 

Gave breakdown of brokers

Interactive brokers e.g. Min 10kUSD needed

Light speed

Td direct investing - commissions are a little steep, need to trade a lot

Swiss quote

DEGIRO

Erste bank

 

Others Alex has had no personal experience with- DBS vickers, mubasher trade

Don't get paralysed by otptions - do HWK, and start investing. All more or less the same in total operating costs (with exception of those with custody fees)

 

Funding brokerage account

Compare exchange rates to see the spreads/ charges

 

Call UAE exchange - have cheaper rates, hav accounts with all major accounts.

They can meet you in person for the first time.

And then negotiate by phone/ email. Don't make cash payments as bank will need proof of source.

Keep scans of transactions as proof

Contact Mohamed Rizwan - RM - 0503241208

 

Etf research tools

TD direct

justetf.com

Morning star

etfdb.com

Extra magazin

 

 

 

 

 

 

 

 

 

 

 

 

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