Proprietary Trading of Crypto Commodities in Dubai

21Apr, 22

Proprietary Trading of Crypto Commodities in Dubai

In the rapidly evolving landscape of cryptocurrency trading, proprietary trading in crypto-commodities has emerged as a prominent strategy in Dubai. The Dubai Multi Commodities Centre (DMCC) has played a pivotal role in fostering this dynamic market. This blog will delve into the world of proprietary trading in crypto-commodities in Dubai, highlighting the significance of DMCC and showcasing the leading proprietary trading firms in the city. So, let Dhanguard help you understand proprietary trading in this article and help you set up your business in crypto trading.

What is Proprietary Trading?

Proprietary trading, commonly known as "prop trading," refers to trading financial instruments, including cryptocurrencies, using a firm's capital instead of clients' funds. It involves a high degree of risk and requires a deep understanding of the market to generate profits consistently. Stocks, bonds, commodities, currencies, and other items may be traded in proprietary trading. Financial firms or commercial banks participating in proprietary trading think they have a competitive edge that will allow them to achieve a higher yearly return than index investing, bond yield appreciation, or other investment strategies. In Dubai, this practice has been extended to the exciting world of crypto-commodities, creating a unique and dynamic trading environment.

Advantages of Proprietary Trading

Here are some of the benefits of Proprietary Trading:

  • Proprietary trading offers a financial institution or commercial bank several advantages, the most notable of which is increased quarterly and annual earnings. Commissions and fees are earned by a brokerage firm or investment bank when they trade on behalf of their clients. This income may be a small percentage of the overall amount invested or gains made, but it permits an institution to realize all the profits from an investment.

  • The second advantage is that the institution can keep a stockpile of securities. This is beneficial in two ways. Any speculative inventory permits the institution to provide clients with an unanticipated benefit. Second, it aids these institutions in preparing for down or illiquid markets when buying and selling securities on the open market becomes more difficult.

Proprietary trading allows a financial institution to become a powerful market maker by offering liquidity on specific securities or groups of guards.

Crypto-Commodities: A Unique Asset Class

Crypto-commodities represent a fusion of cryptocurrency and traditional commodities, such as gold, silver, and oil, making them a distinctive asset class. These commodities are often tokenized on blockchain platforms, adding transparency and efficiency to the trading process. As a global hub for commodity trading, Dubai is ideally positioned to lead in this innovative space.

DMCC's Role in Facilitating Crypto-Commodity Trading

Dubai Multi Commodities Center, or DMCC

With more than 15,000 companies from all global industries and sectors, the Dubai Multi Commodities Center (DMCC) Freezone is the largest free trading zone in the United Arab Emirates. The Financial Times FDI magazine ranked it the top global free area.

It is ideal for people wishing to establish a firm that operates in one of the following fields: start-ups, blockchain technology, gold, primary metals, and cryptocurrencies, among many others. A thriving new ecosystem created especially for innovators in the center of Dubai comprises entrepreneurs, existing and new businesses, world-class infrastructure, and innovative ideas.

Benefits Of DMCC Freezone

Some of the benefits of DMCC Freezone are as follows:

  • Exposure to a prominent Crypto and Blockchain Ecosystem and access to like-minded people. 

  • DMCC even has its internal Crypto Center.

  • Strategic location: DMCC is strategically located in the center of Dubai, making it quick and straightforward to get to the airport. The port at Jebel Ali Port and the Expozozo location

  • 100% Business Ownership: You can own 100% of the new business you are forming. 

  • Work in Hearty Community: There are around 92,000 individuals that live and work in DMCC. With its breathtaking seafront and lovely.neighborhood park 

  • Thriving Business Center: You may contact more than 15,000 member businesses from more than 170 countries.

  • Flexible Solutions: The DMCC provides a range of commercial services. You can establish a new limited liability corporation (LLC) or a branch subsidiary.

Role of DMCC  in Facilitating Crypto-Commodity Trading 

The DMCC's Role in Facilitating Crypto-Commodity Trading is as follows:

  1. Crypto Licensing: The DMCC has been at the forefront of creating a conducive regulatory environment for crypto trading. It introduced the "DMCC Crypto Centre," which offers licenses for cryptocurrency businesses. These licenses allow firms to legally conduct proprietary trading in crypto-commodities within the DMCC free zone.

  2. Infrastructure: DMCC provides state-of-the-art infrastructure and technology support, making it an attractive hub for cryptocurrency trading companies. With a secure and efficient trading environment, firms can focus on executing successful trades.

  3. Global Connectivity: Dubai's strategic location offers easy access to international markets, enhancing the appeal for proprietary trading firms. DMCC's extensive network and partnerships strengthen its global trading hub position.

Strategies in Proprietary Trading

Traders at a proprietary trading firm might choose various tactics to make their transactions profitable.

The following are the tactics we will discuss:

Mergers Arbitrage

Merger arbitrage, also known as risk arbitrage, is an investing technique in which a trading business purchases the stock of merging companies. The goal of this strategy is to take advantage of market inefficiencies. This can happen when two or more merging firms' reserves are purchased and sold simultaneously, resulting in less risky yet profitable chances.

Indexes Arbitrage 

The index arbitrage technique tries to profit from the discrepancy between the current stock price and the predicted future stock price. An index arbitrage opportunity is buying a stock at 1200 today and selling it at 1210 later. As a result, the approach entails buying the lower-priced index and selling the higher-priced index to achieve price parity.

Global Macro-Trading

Understanding macroeconomic events on a regional, national, or global scale is crucial to the global macro-trading strategy. The portfolio managers examine macroeconomic and geopolitical aspects to successfully implement the global macro plan. Such factors include the interest rate, exchange rates of currencies, political events, international trade, and international relations. Furthermore, this strategy is based on the systemic risk of markets over which the organization has no influence.

Volatility Arbitrage

This technique aims to profit from the difference between the implied volatility in options and the underlying fluctuations. Most volatility arbitrage is done in a delta-neutral portfolio that includes an opportunity and an underlying asset. We all know that volatility and option prices move in lockstep.

Suppose a trader believes implied volatility is too low and the underlying asset is expected to have higher volatility momentum. In that case, the trader can buy a long call option and sell a short position in the underlying. If volatility rises in the future, the option's value will also increase. The outcome would be favourable for the trader if the underlying asset's price remained unchanged.

Experienced traders and quants employ a variety of increasingly advanced trading tactics. In our Advanced Algorithmic Trading Strategies learning track, created in partnership with renowned industry professionals, you can learn about some of these trading strategies.

Prop Trading Firms in Dubai: Leaders in Crypto-Commodity Trading

  • DMCC Tradeflow: DMCC Tradeflow is a subsidiary of DMCC and offers a platform for trading various commodities, including cryptocurrencies. It provides a secure and regulated environment for proprietary trading in crypto-commodities.

  • Alphabit: Alphabit is one of Dubai's pioneering cryptocurrency investment firms specializing in proprietary trading. Their seasoned traders and analysts have a record of generating significant returns in the crypto markets.

  • IIG Trade: IIG Trade is a diversified financial services company in Dubai, known for its proprietary trading activities in both traditional and crypto markets. Their focus on risk management and data analytics sets them apart.

  • Kraken UAE: Kraken, a renowned global cryptocurrency exchange, has established a strong presence in Dubai. They offer proprietary trading services, leveraging their extensive liquidity and advanced trading tools.

  • BitOasis: BitOasis is a Dubai-based crypto wallet and exchange platform with proprietary trading. Their user-friendly interface and compliance with DMCC regulations make them a popular choice among traders.

Challenges and Opportunities

While proprietary trading in crypto-commodities presents immense profit opportunities, it also comes with challenges. Volatility, regulatory changes, and cybersecurity risks are some of the factors that traders must navigate. However, these challenges can be mitigated with the right strategy, risk management, and compliance measures. We at Dhangurad will help you at every step of your Crypto Journey.

Conclusion

With the DMCC's support, Dubai has emerged as a promising destination for proprietary trading in crypto-commodities. The regulatory framework, infrastructure, and global connectivity offered by DMCC have attracted leading prop trading firms to establish their presence in the city. As the crypto market continues to evolve, Dubai is poised to play a significant role in shaping its future.

In a world where digital assets are gaining prominence, staying ahead in the game requires a deep understanding of proprietary trading in crypto-commodities, the role of DMCC, and the key players in the Dubai market. "Dhanguard" is ready to assist you in setting up appropriate, compliant cryptocurrency operations in the UAE, and we will continue paying close attention to this exciting, dynamic market sector. Feel free to connect with us to learn more about business setup and different trade license requirements.