Proprietary Trading of Crypto Commodities in Dubai

Proprietary Trading of Crypto Commodities in Dubai: A Complete Guide

Dubai is emerging as one of the leading global destinations for the leading destinations for cryptocurrency and blockchain. The city offers excellent business opportunities for entrepreneurs interested in trading digital assets. The entrepreneurs will also get progressive regulatory opportunities for those interested in trading digital assets. The most promising activity in this space is proprietary trading of the crypto commodities, and it is also known as prop trading. This activity allows the business to trade cryptocurrencies by using its own funds instead of handling the investment of the client. 

In recent years, Dubai has established clear regulations to support the crypto-related activities, such as proprietary trading. The government also focuses on virtual assets and its efforts to attract fintech companies, which have made it easy for traders and firms to operate legally. You can start proprietary crypto trading confidently if you have a proper license and regulatory guidelines. 

What is Proprietary Trading in Crypto Commodities?

In the case of proprietary trading, or prop trading, it is trading financial instruments from the company’s capital rather than client capital. In the context of cryptocurrency commodities, this can simply mean buying, selling, or holding cryptocurrencies such as Bitcoin, Ethereum, or other tokens and making profits based on that. The company does not manage or invest client money and is solely responsible for profits and losses.

Proprietary crypto trading primarily aims to maximize market volatility and price changes to generate returns. This differs from operating a crypto exchange or brokerage, which is a client account, commission-based, or advisory services sales business model. This simpler approach enables being more compliant and regulatory-friendly.

Is Proprietary Crypto Trading Legal in Dubai?

Yes, proprietary trading in crypto commodities is fully legal in Dubai. But you have to follow the guidelines set by the local authorities. The key condition is that the company trader only trades with its own capital. This cannot manage the funds for the other or act as an exchange or brokerage without obtaining additional permissions. 

Dubai has also created a safe and transparent environment for digital asset businesses. Some of the Free Zones across the UAE now allow companies to apply for a license specifically for proprietary trading in crypto commodities. The license gives firms the legal right to trade cryptocurrencies. Other blockchain-based assets are for their own benefit. 

Regulatory and Licensing Framework 

Dubai's proactive approach towards crypto regulations is one of the main reasons. It has become a leading digital asset hub. If you want to operate your business legally, you have to get a proper license through a recognized Free Zone or authority. Every authority or Free Zone provides different benefits. The most popular choice for proprietary crypto trading is DMCC. This offers virtual assets and financial activities. Key regulatory authorities:

1. Virtual Assets Regulatory Authority (VARA): regulates the virtual asset activities across Dubai. It also ensures compliance and transparency. 
2. Dubai Multi Commodities Center (DMCC): It offers licenses for crypto-related businesses. It also includes proprietary trading in crypto commodities. 
3. Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC): These financial Free zones have their own regulatory frameworks for virtual assets and financial activities. 

Understanding the DMCC Proprietary Trading License 

The DMCC license for proprietary trading in crypto commodities has been specifically designed for companies that trade digital currencies by using their own funds. With this license, the business can buy, sell, and hold cryptocurrencies like Bitcoin or Ethereum. 

However, there are restrictions in this business. The company holding this license cannot act as a broker. It provides crypto custody services or manages client portfolios. Their activities should be limited to trading and investing their own funds. This makes it ideal for traders, hedge funds, and crypto-focused businesses that want to operate legally within the jurisdiction of Dubai. 

Key Requirements for Obtaining a Proprietary Trading License 

If you want to set up a proprietary crypto trading company in Dubai. You need to fulfill certain conditions, and you have to provide the required documents. These requirements depend on the Free Zone but typically include:

1. Own Funds Only: The company should use its own money for trading. You can not accept the funds from the clients or external investors. 
2. License Approval: The business has to apply to obtain a license under the activity “Proprietary Trading in Crypto Commodities”. 
3. Minimum Share Capital: Most of the Free Zones need a minimum share capital of around AED 50,000. 
4. Registered Office: The businesses should have an office or a flexi-desk space for their Free Zone. 
5. Compliance Procedures: The company should have policies for Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. 
6. No Third Party Funds: The company cannot trade or manage the funds on behalf of others. 

Steps to Start a Proprietary Crypto Trading Business in Dubai 

You can set up your own proprietary trading company for crypto commodities in Dubai. You have to follow some of the steps:

1. Choose a Free Zone

Identify a free zone that is supportive of crypto-related activities, such as DMCC or RAK DAO.

2. Select the Business Activity

What you want to choose is the activity “Proprietary Trading in Crypto Commodities,” which is necessary for compliance with laws.

3. Compile the Documentation

You will need the minimum required documents, such as a passport copy, proof of address, a simple business plan, and some details related to capital.

4. Make the Application

Make an application to the free zone authority you have selected and pay the required application fees.

5. Establish Physical or Flexi Desk

Select a direct physical or virtual workplace, depending on the free zone.

6. Compliance Measures

Make sure that AML and KYC procedures comply with the laws of the UAE. 

7. Create a Corporate Bank Account

After license approval, the next step is to open a bank account for the corporation and open an account with the relevant crypto exchange where trading will take place. 

8. Start Trading

Once the above requirements are completed, the company can now trade its own crypto assets.

Costs and Timeline To Start a Proprietary Trading Company in Dubai

The costs incurred to establish a proprietary trading company in Dubai vary depending on the chosen free zone and the services involved in the setup. A typical setup cost is between AED 40,000 and AED 60,000, which will include accounting and licensing costs.

• DMCC License - AED 50,000* or thereabouts
• RAK DAO License - usually less expensive and faster

Timeline – Generally, a company creates a subsidiary, and registration is between 2 to 4 weeks, depending on the documentation and approval process.

Advantages of Proprietary Trading in Cryptocommodities in Dubai

1. Legal and Secure Environment

Dubai offers a legal framework favourable to crypto businesses, giving traders further peace of mind and guidance in regulations.

2. No Customer Engagement

As prop trading is conducted with only the company's cash, you eliminate the headaches of dealing with client accounts and the strict rules surrounding them.

3. Business Environment

Dubai possesses world-class infrastructure, an advanced fintech ecosystem, and investor protection policies.

4. Tax Advantages

A lot of free zones provide tax advantages and a simple structure for business activities to facilitate profitable business transactions.

5. Worldwide Access

To facilitate trading through worldwide exchanges, liquidity providers and financial institutions, your business needs to be incorporated and licensed in the UAE.

Challenges and Risks You Can Face While Starting a Proprietary Trading Company in Dubai

While Dubai is a fantastic place to engage in proprietary crypto trading, there are a few challenges to consider.

1. Regulatory Changes - Since regulations governing digital assets are changing rapidly, you need to stay informed.
2. Banking Processes - Some local banks are reluctant to work with crypto-related businesses.
3. Market Conditions - The digital currency markets are very volatile, and businesses will need to manage risk appropriately.
4. Compliance Costs - Regular loss market audit and compliance checks are also expensive.

Reasons to Establish a Proprietary Crypto Trading Firm in Dubai

Dubai is seen as the global leader in being at the forefront of the digital transformation. The government has implemented a vision to improve the country for future international investors through legislation supporting the protection of investors, as well as infrastructure for fintech companies and crypto trading.

Proprietary trading firms have access to specific licenses, which make it incredibly advantageous to operate a firm in the region, especially when coupled with tax incentives and worldwide markets. Private investors and traders can invest with confidence knowing they are operating in a definitive and secure legal environment.

Flyingcolour Business Setup - Your Partner in Establishing a Crypto Trading Company in Dubai.

Establishing a crypto trading business can be overwhelming without proper assistance. As a shortcut, Flyingcolour Business Setup offers services: 

Flyingcolour® has over 20+ years of experience helping entrepreneurs and businesses set up within the UAE. We specialize in helping entrepreneurs and investors obtain crypto and proprietary trading licenses. 

All-in-one support includes:  

• Helping you choose the best free zone (DMCC, RAK DAO, or DIFC) based on your vision. 
• Preparing and supplying documentation. 
• Coordinating with regulatory bodies for approval. 
• Helping with visa applications, bank accounts, and compliance policy. 
• Providing business support after the business establishment.  

Frequently Asked Questions (FAQs) 

1. What is meant by proprietary trading in crypto commodities?

It refers to trading cryptocurrencies involving your own firm's funds, not client money. 

2. Is proprietary crypto trading legal in Dubai? 

Yes, it can be legal; however, you will need the appropriate license and follow the crypto regulations specific to the United Arab Emirates. 

3. Under such a license, can I manage other people’s funds? 

No, it only allows you to trade your own capital. Managing funds from an external source would require other authorization.

4. What is the duration of the setup process?

The setup process generally takes 2 to 4 weeks, depending on documentation and approvals.

5. In what ways can Flyingcolour® assist?

Flyingcolour® assists you during the selection of the appropriate free zone, preparation of documents, application for a license, and ensuring your business is fully compliant.

 Therefore, to learn more about proprietary trading Of crypto commodities in Dubai, Book a free consultation with one of the Flyingcolour Business Setup team advisors.

The article was published on 17/07/2021. It is important to note that the federal policies and updates mentioned may have changed since then. For the most current information, please contact our consultant!