By ARAB NEWS

Published: Jan 25, 2012 01:39 Updated: Jan 25, 2012 01:39

RIYADH: Foreign exchange companies in Saudi Arabia are increasingly trying to lure individual investors by tempting them with credit coverage of up to 400 percent of their targets’ capital. They also promise to expand their financial portfolios, only to leave them in the lurch at the first signs of trouble, local daily Al-Riyadh reported Tuesday.

Financial analysts warned investors that these foreign companies would immediately liquidate their portfolios at any sign of loss without informing them. They explained that according to the foreign exchange trading agreement, the companies have the right to protect themselves through the immediate liquidation of individual portfolios without notice.

The financial experts asked Saudi citizens and foreigners living in the Kingdom not to fall easy prey to such companies, saying that investing in foreign exchange carries exceptionally high risk. “A Forex investor may lose his entire capital in a single day,” a financial analyst said. He did not want to be identified.

“Foreign exchange markets are extremely risky. They are only being used as hedging funds against fluctuations of major currencies to the dollar. They embody high risks for people with no or little experience in foreign exchange,” said Turki Fadqaa, head of the research department at Al-Bilad Investment Company. He warned the companies were only targeting investors with little or no knowledge of foreign exchange, eventually subjecting them to great losses.

Fadqaa described the claim of one of the companies that it had about 600,000 Saudi investors as doubtful and said there was no accurate data about dealers in foreign exchange markets.

He said the foreign exchange markets have unique features that tempt investors, including their high liquidity and the fact that they work round-the-clock from Monday to Friday through international banks that provide them with exchange rates and other services. “These companies benefit from the price differences and the commissions they get from the clients,” he said, adding that another feature in favor of these companies was that clients could always deal with them electronically.

Fadqaa said none of the foreign companies was licensed to operate in the Kingdom. “This is why they use the Internet to publicize their activities,” he said.

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Note by the editor: This is not just a ‘Saudi problem’, but a world-wide one. This so-called ‘Foreign Exchange Trading’ is in fact just like gambling. Trading in what you do not have is not permitted in Islamic Finance. Consequently we should not follow into this trap. Sooner or later you always loose – and the Trading Companies always win.