Forex traders constantly look for new and exciting trading opportunities. Typically, they’ll stay away from transacting currencies of a country without rule of law, or where the economic climate is dismal or unpredictable. Where they do like to gravitate towards, however, are countries with increasingly improved economic outlooks. The recently improving foreign exchange reserves in Pakistan, and a strong rebound in the domestic economy (measured by solid positive balance of trade), has opened potential Pakistani Rupee (PKR) trading opportunities to forex traders.
The Changing Face of Pakistan’s Forex Scene
Long a resource-based economy, Pakistan relied largely on the exports of commodities, such as coal, cotton, rice and other unfinished goods, to fund its domestic agenda. Because of the low Pakistan Rupee (PKR) to U.S. Dollar (USD) parity, the nation it seemed frequently ran a current account (Imports versus Exports) deficit. However, that appears to have changed of late. For the 5th consecutive month, in November 2020, the nation has managed to produce a current account surplus. For the ongoing fiscal year, the government reported a YTD surplus of $1.6 billion, compared to a $1.7 billion deficit during the same period last fiscal year. And that’s no mean feat!
On the forex side of the economy, the country had more good news to report. Pakistan saw its foreign exchange reserves receive a massive $1 billion boost just in a single month (Nov 2020). As recently as December 2020, the State Bank of Pakistan announced that the country’s forex reserves had grown to around $13 billion. That’s a 3-year record which the government points out is an accomplishment despite COVID-19.
Simultaneously, overseas Pakistanis have been more than generously contributing to their birth-nation’s foreign exchange reserves. This is the result of the country’s Roshan Digital Account (RDA) initiative, that lets overseas Pakistanis more easily establish and operate bank accounts remotely, in Pakistan, without the need to visit a bank branch.
According to figures, the total deposits in RDA accounts surpassed $200 million by late December 2020. What’s more encouraging, is the pace at which forex repatriation into RDA is occurring. The first $100 million took 76-days to pile up. However, the next $100 million took just 28-days.
Making Money Trading Forex in Pakistan
As a currency trader, you don’t want to engage in trading a currency that has weak economic fundamentals to keep it afloat. Currency traders are a shrewd, risk-averse lot. They know that transacting a currency with weak fundamentals risks getting them burned – and so, they steer well away from it.
Clearly, the foreign exchange position within Pakistan has improved significantly – and that provides opportunities for forex traders globally. With no real foreign exchange controls worth mentioning, locals, expats and foreigners are free to buy, sell and trade foreign currencies for profit. Of course, like many Islamic countries, there are religious laws (Sharia) which govern how forex trades occur.
Trading Swap-Free
Sharia laws bar any form of interest-bearing transactions. The concept of “give to give”. Therefore, while it is legal to exchange (trading) one currency against another, Sharia forbids swap fees (daily charges on overnight open positions). To comply with this interpretation of Islamic tenants, forex platforms offer no swap accounts.
To the casual observer, this might sound like a curious overhead to live with, and it might (mistakenly) give the view that forex trading in Pakistan is cumbersome. However, far from it. It may come as a total surprise (a shock, even?) to readers, but in one of the world’s most trusted and well-regulated foreign exchange jurisdictions, Sharia law in Israel works the same way. With nearly 18% of the Israeli population being Muslim, forex brokerages offer swap-free accounts without overnight rollover interest.
Leverage Redefined
Another money-making strategy used by forex traders is leverage. Essentially, this entails borrowing (or taking a loan) purchasing power from the trading platform to make trades larger than the amount of a trader’s own fund balances held in their account. In return, brokerages charge an interest on the amount of margin loans.
Pakistan’s Sharia laws forbid interest, and therefore leveraged trades are illegal (haram). To address this specific tenant of Sharia, trading platforms have discontinued the requirement of interest on margin loans. Instead, traders pay higher commission rates – which is perfectly legal under Sharia – for leveraged trades.
At its very basic, forex trading in Pakistan isn’t all that different from executing such trades anywhere else in the world. However, understanding these simple differences will help anyone looking to make money in foreign exchange in Pakistan, whether they are residents or living abroad.
Choose Your Foreign Currency Broker Wisely
Regardless of the slight trading differences, successful forex trades hinge on one critical factor: The reliability, trustworthiness and robustness of your trading platform. To make sure you partner with a reliable platform, look for someone that’s been around for over a decade. It helps if it supports trading in more than just forex – such as CFDs, Stocks and Metals.
To ensure success, your broker must provide you the tools for success. These typically come with up-to-date news and blogs, as well as analytical tools that help you assess and tailor your trades based on the most favorable trends and currency pair moves. This allows traders to trade USD/PKR today, and quickly pivot to EUR/PKR tomorrow, if that trade offers greater arbitrage.
One of the biggest hurdles for a forex trader, especially in a developing currency trading market like Pakistan, is depositing and withdrawing money to execute trades quickly and cost-effectively. That’s where the number and type of payment systems supported by your broker comes in. Choose a broker that not only allows you to deposit local currency, but one that supports multiple internationally reputed payment networks, including Visa, Skrill, Perfect Money and STICPAY.
And finally, choose a trading platform that allows you to grab profitable opportunities anytime, anywhere. And that means using a forex broker that offers its tools across platforms – desktops, tablets, laptops and smartphones. To ensure you always stay on top of your forex trades, check to ensure the trading platform supports multiple environments, including Windows, Mac, iOS and Android.