Liquidity refers to the ability to buy or sell an asset quickly without significantly affecting its price. In the context of currency trading, high liquidity means the currency can be easily traded at stable prices, with narrow bid-ask spreads. Unfortunately, the Iraqi dinar (IQD) suffers from poor liquidity, making it a challenging and high-risk currency for online trading.

Reasons: 

The primary reason for poor liquidity in the dinar market is its limited global demand and restricted convertibility. Unlike major world currencies such as the U.S. dollar (USD), Euro (EUR), or British pound (GBP), the IQD is not widely accepted or traded on international forex platforms. Most financial institutions and forex brokers avoid dealing with the dinar due to regulatory restrictions and the political instability of Iraq. Consequently, investors or traders who purchase dinars online are often locked into large spreads and low resale values.

Additionally, the fixed exchange rate maintained by the Central Bank of Iraq (currently around 1,310 IQD per USD) limits market-driven price discovery. In open forex markets, currency prices fluctuate based on supply and demand. However, with central control and restrictions on currency movement, the dinar market lacks the dynamic price movements that foster liquidity. This forces dealers and brokers to set wide bid-ask spreads to compensate for the risk of holding an illiquid and difficult-to-resell currency.

The liquidity issue is further compounded by geopolitical factors. Iraq’s economy is heavily reliant on oil exports and is subject to fluctuations in oil prices and regional political instability. These uncertainties deter global investors and forex traders from engaging with the IQD.

Factors Creating Large Bid-Ask Spreads

The bid-ask spread refers to the difference between the price at which a dealer will buy a currency (the bid) and the price at which they will sell it (the ask). In highly liquid markets, such as those involving the USD or EUR, this spread is minimal—often less than 0.5%. However, for the Iraqi dinar, bid-ask spreads can range from 20% to as high as 72%, creating a significant financial burden for buyers.

Several key factors contribute to these large bid-ask spreads:

1. Dealer Manipulation: Most online dealers set their own buy and sell prices for the IQD without adhering to any regulatory standard. They purchase dinars at extremely low rates and sell them at inflated prices. This lack of oversight allows them to exploit customers, particularly those lured by speculation.
2. Currency Hoarding: Some investors hoard large amounts of dinars in the hope of a future revaluation. This reduces the available supply on the market, further increasing the spread between buying and selling rates.
3. Low Market Demand: Due to the lack of interest from institutional investors and mainstream forex platforms, the demand for dinars remains minimal. With low demand, sellers must offer discounts to attract buyers, which in turn increases the bid-ask spread.
4. Lack of Regulation: Online trading platforms for IQD operate largely in an unregulated environment. This allows them to manipulate prices and charge excessive fees without facing consequences.
5. Cost of Currency Handling: Since the dinar is often purchased in physical form (banknotes) rather than electronic transfers, dealers incur costs related to shipping, insurance, and security. These operational expenses are passed on to buyers through inflated ask prices.

How Dealer Manipulation Worsens the Problem

Dealer manipulation plays a major role in worsening the already fragile state of the dinar market. The absence of regulatory oversight enables unscrupulous practices, including:

• Inflated Pricing: Dealers often quote dinar prices well above the fair market value, creating a significant markup that makes it almost impossible for buyers to resell at a profit.
• Misleading Marketing: Many online platforms use aggressive marketing strategies, promoting the idea of an imminent dinar revaluation that will supposedly turn small investments into massive windfalls. These narratives are often baseless and designed solely to drive sales.
• Limited Competition: Because few reputable financial institutions handle dinar transactions, the market is dominated by a handful of dealers. This lack of competition allows them to set arbitrary and exploitative pricing structures.
• Hidden Fees: Many dealers include hidden fees in their transactions, only revealing them after a purchase has been made. This reduces the resale value of the dinar even further and surprises investors with unexpected costs.
• Scare Tactics: Some dealers use fear-based tactics to pressure buyers into quick decisions, such as suggesting that opportunities to buy at current rates are rapidly closing or that regulatory changes will soon make purchases impossible.

What Buyers and Sellers Can Do to Protect Themselves

If you are considering buying or selling Iraqi dinar online, it is crucial to take steps to protect yourself from manipulation and loss.

• Verify Rates: Compare rates from multiple platforms and cross-check them against the official exchange rate published by the Central Bank of Iraq (CBI). Be cautious of any dealer whose rates deviate drastically from the CBI benchmark.
• Avoid Speculation: Do not treat dinar purchases as speculative investments. The chances of a major revaluation are slim, and most gains from IQD trading are illusory.
• Use Transparent Platforms: Opt for dealers who disclose all transaction costs and fees upfront. Transparency is a good indicator of business integrity.
• Research Dealer Reputation: Read customer reviews, check for complaints, and avoid platforms with a history of fraud or customer dissatisfaction.
• Understand the Market: Educate yourself about Iraq’s economic and political situation. Economic reforms, central bank policies, and geopolitical stability are essential factors that influence the dinar’s future.
• Consult Financial Experts: Before making a large investment, seek advice from a qualified financial advisor who can help you assess the risks and alternatives.

Is Online Dinar Trading Worth the Hassle?

Given the extreme illiquidity, wide bid-ask spreads, and rampant dealer manipulation, trading Iraqi dinars online is not worth the hassle for most investors. While the concept of buying foreign currency at a low rate and selling at a higher rate may sound appealing, the realities of the dinar market paint a very different picture.

The currency’s limited demand, combined with dealer exploitation and unpredictable geopolitical factors, make profitable trading extremely difficult. Unless Iraq undergoes substantial economic reform and opens its currency market to global trading platforms, the issues plaguing the dinar will persist.

For investors seeking stable, liquid, and transparent opportunities, the dinar should not be considered a viable option. Instead, focus on markets where regulatory safeguards exist, transaction costs are minimal, and price discovery is driven by true market forces.

Ultimately, unless you are an experienced currency trader with deep knowledge of Iraq’s political and economic landscape, or someone with a legitimate need to hold dinar (such as for business in Iraq), online dinar trading will likely result in losses. The combination of poor liquidity, large bid-ask spreads, and dealer manipulation makes it a losing proposition for most.

If you already own Iraqi dinars and are looking to sell, shop around, verify rates, and avoid desperation selling to minimize the impact.

Conclusion: 

The wide gap between buying and selling Iraqi dinar online is not just an inconvenience—it’s a structural flaw in the market that exposes unsuspecting investors to high risks. 

Only those with a strong understanding of the currency market and Iraq’s economy should consider participating, and even then, with extreme caution.