Over the past few months, I've been asked by friends, acquaintances & relatives on my thoughts on foreign exchange trading. Due to various reasons, queries on forex has increased and this i s troubling me for the following reasons:
1. Losing sight on the fundamentals:
When investing in anything, be it stocks, currencies or real estate, I always consider the fundamentals behind the asset. For example, the fundamentals behind stocks is the company itself...understanding the company itself, the management team that runs it, carrying out various forms of analysis on the financial statements etc, which generally helps to answer whether the stock of the company is a good buy or otherwise. But when it comes to foreign exchange trading, I sometimes question what is the real fundamentals behind trading in currencies? What is the investor really trading in? Once the fundamentals becomes distinctively vague, volatility increases dramatically due to high speculation.
2. Reliance on technical analysis:
Due to the vague fundamentals within foreign exchange trading, some part of foreign exchange trading relies heavily on technical analysis (as opposed to fundamental analysis). Using some formula or methodology, the hour-to-hour or certain minute-to-minute rise and fall of the market is analyzed and depending on the methodology, it is supposed to tell the investor when to buy or sell. Let me assure you that there is no winning formula or methodology. If someone offers anyone of us a prize-winning formula or so, I become very skeptic. To be honest, if I discovered a winning formula, I wouldn't share it with anyone. If I shared it or sold it, this sharing of formula saturates the market. Any advantage or arbitrage is lost rather quickly.
3. The financial market is a messy place, the forex market even messier:
The financial world is a messy place, decision-wise. Every organization, group & individual has their own formula or methodology...and since everybody makes investment decisions based upon their own methods, the reality is that the market goes up or down for various reasons...sometimes, the reason why it falls maybe clear (e.g. a recession) but there is never a complete answer, especially in what is already a volatile market in the first place.
4. Mixing forex with marketing product/group activities:
I also am guarded against mixing investment strategies, with other side incomes or marketing products. I am aware some people might share or sell their investment methods only if the person he shares it with, will participate in some group activities or marketing venture. I am not saying this is wrong or a pyramid scheme, but some of the activities I hear are too good to be true.
The methods are too vague or the returns are too high to be sustainable, especially in the global downturn that we are all facing nowadays. Sometimes, I ask, where does the person's wealth or income truly come from? Is it from forex? From the marketing or group activity? Other side incomes?
5. Forex akin to gambling:
Due to the speculative nature of foreign exchange trading, an experienced trader and ex-banker whom traded in forex once said, he doesn't trade in forex with his own money and he like an Islamic jurist and scholar that I know, clearly state it is near to gambling. Due to the volatile nature of the market (and I'm adding, the questionable 'fundamentals'), investment in foreign exchange trading (other than changing from one currency to another), is akin to a game of chance. A game of chance is basically gambling & is haram.
6. Don't follow your heart, follow your head:
This brings me to my next point, intentions. Intentions are important in Islam, as Prophet Muhammad (peace be upon him) states that 'Actions are but judged by intentions...'. I have heard numerous times from some finance-conscious individuals that the reason why they are sharing their methods or formulas are because they want to see Brunei be successful and where returns are not high enough in banks, forex trading is the answer. They further preach a good sales pitch, on how we Bruneians buy a car that is too expensive etc, which is somewhat true but I always felt that if any finance-conscious Bruneians intend to help other Bruneians succeed and profit, it's not in forex. It's too volatile and too much similar to gambling.
Why not invest in companies? If we really want to make Brunei more successful and Bruneians richer, venture into our own economy. If we have enough money, can tolerate the risk and have a good business plan/ideas, plan comprehensively and set up our own company. At least, the fundamentals is clear.
However, if one does not have enough financial knowledge (yet), seek mutual funds. There is no such thing as a passive income in forex. It requires active management & there is always potential for big gains and big losses, no matter what method you use.
7. No such thing as a free lunch & financial education:
We all must face the reality that there is no such thing as making a quick buck. There is no easy, sustainable way to earn money fast. There is no such thing as a free lunch or free advice. Making money is hard work and in many case, takes time. I'm not saying that no one has ever made money from forex, as I know some forex investors myself but they have their days, good & bad. All I'm saying is if anyone offers us something that is too good to be true, check it out first. Educate ourselves. Financial education is one of the best form of protection against pyramid schemes, questionable investment methods etc, all of which can make us regret big-time.
8. What we all don't want to end with:
What I would dread to see is Bruneians whom indulge in forex, not knowing the real issues behind forex...what makes the market go up and down...how volatile it truly is...what Islam says on forex...because at the end of the day, I dread see-ing Bruneians and friends lose their hard-earned money in some scheme and try to re-gain money in another questionable scheme, only to find the cycle compounding our losses, creating a bubble that will only burst in a bigger, disasterous way.
I leave this post, with this verse from the Qur'an, with sincere intentions for all, Bruneians or non-Bruneians, Muslims or non-Muslims to not fall for any questionable products or schemes, and be prepared with knowledge, be it financial or otherwise.
From Surah Al-Zumar (The Crowds), verse no. 9:
My thoughts. Apologies on any shortcomings.
Wassalam.
1. Losing sight on the fundamentals:
When investing in anything, be it stocks, currencies or real estate, I always consider the fundamentals behind the asset. For example, the fundamentals behind stocks is the company itself...understanding the company itself, the management team that runs it, carrying out various forms of analysis on the financial statements etc, which generally helps to answer whether the stock of the company is a good buy or otherwise. But when it comes to foreign exchange trading, I sometimes question what is the real fundamentals behind trading in currencies? What is the investor really trading in? Once the fundamentals becomes distinctively vague, volatility increases dramatically due to high speculation.
2. Reliance on technical analysis:
Due to the vague fundamentals within foreign exchange trading, some part of foreign exchange trading relies heavily on technical analysis (as opposed to fundamental analysis). Using some formula or methodology, the hour-to-hour or certain minute-to-minute rise and fall of the market is analyzed and depending on the methodology, it is supposed to tell the investor when to buy or sell. Let me assure you that there is no winning formula or methodology. If someone offers anyone of us a prize-winning formula or so, I become very skeptic. To be honest, if I discovered a winning formula, I wouldn't share it with anyone. If I shared it or sold it, this sharing of formula saturates the market. Any advantage or arbitrage is lost rather quickly.
3. The financial market is a messy place, the forex market even messier:
The financial world is a messy place, decision-wise. Every organization, group & individual has their own formula or methodology...and since everybody makes investment decisions based upon their own methods, the reality is that the market goes up or down for various reasons...sometimes, the reason why it falls maybe clear (e.g. a recession) but there is never a complete answer, especially in what is already a volatile market in the first place.
4. Mixing forex with marketing product/group activities:
I also am guarded against mixing investment strategies, with other side incomes or marketing products. I am aware some people might share or sell their investment methods only if the person he shares it with, will participate in some group activities or marketing venture. I am not saying this is wrong or a pyramid scheme, but some of the activities I hear are too good to be true.
The methods are too vague or the returns are too high to be sustainable, especially in the global downturn that we are all facing nowadays. Sometimes, I ask, where does the person's wealth or income truly come from? Is it from forex? From the marketing or group activity? Other side incomes?
5. Forex akin to gambling:
Due to the speculative nature of foreign exchange trading, an experienced trader and ex-banker whom traded in forex once said, he doesn't trade in forex with his own money and he like an Islamic jurist and scholar that I know, clearly state it is near to gambling. Due to the volatile nature of the market (and I'm adding, the questionable 'fundamentals'), investment in foreign exchange trading (other than changing from one currency to another), is akin to a game of chance. A game of chance is basically gambling & is haram.
6. Don't follow your heart, follow your head:
This brings me to my next point, intentions. Intentions are important in Islam, as Prophet Muhammad (peace be upon him) states that 'Actions are but judged by intentions...'. I have heard numerous times from some finance-conscious individuals that the reason why they are sharing their methods or formulas are because they want to see Brunei be successful and where returns are not high enough in banks, forex trading is the answer. They further preach a good sales pitch, on how we Bruneians buy a car that is too expensive etc, which is somewhat true but I always felt that if any finance-conscious Bruneians intend to help other Bruneians succeed and profit, it's not in forex. It's too volatile and too much similar to gambling.
Why not invest in companies? If we really want to make Brunei more successful and Bruneians richer, venture into our own economy. If we have enough money, can tolerate the risk and have a good business plan/ideas, plan comprehensively and set up our own company. At least, the fundamentals is clear.
However, if one does not have enough financial knowledge (yet), seek mutual funds. There is no such thing as a passive income in forex. It requires active management & there is always potential for big gains and big losses, no matter what method you use.
7. No such thing as a free lunch & financial education:
We all must face the reality that there is no such thing as making a quick buck. There is no easy, sustainable way to earn money fast. There is no such thing as a free lunch or free advice. Making money is hard work and in many case, takes time. I'm not saying that no one has ever made money from forex, as I know some forex investors myself but they have their days, good & bad. All I'm saying is if anyone offers us something that is too good to be true, check it out first. Educate ourselves. Financial education is one of the best form of protection against pyramid schemes, questionable investment methods etc, all of which can make us regret big-time.
8. What we all don't want to end with:
What I would dread to see is Bruneians whom indulge in forex, not knowing the real issues behind forex...what makes the market go up and down...how volatile it truly is...what Islam says on forex...because at the end of the day, I dread see-ing Bruneians and friends lose their hard-earned money in some scheme and try to re-gain money in another questionable scheme, only to find the cycle compounding our losses, creating a bubble that will only burst in a bigger, disasterous way.
I leave this post, with this verse from the Qur'an, with sincere intentions for all, Bruneians or non-Bruneians, Muslims or non-Muslims to not fall for any questionable products or schemes, and be prepared with knowledge, be it financial or otherwise.
From Surah Al-Zumar (The Crowds), verse no. 9:
"Are those equal, those who know and those who do not know. It is those who are endued with understanding that receive admonition"
My thoughts. Apologies on any shortcomings.
Wassalam.
1 comment:
What a nice post! Very informative. As investment is a part of personal finance planning, I thought of mentioning that subscribing for a good Personal Finance Newsletter can be very helpful as they help to keep yourself updated regarding the newest market news and new investment opportunities.
Post a Comment