Forex and Stock Investment

I recently saw a lot of stories in the news about so called Sharia banking. I knew it is banking under Muslim rules but I just looked up some more info today. So I stumbled across the a press release from the British Financial Services Authority. I think they sum it up for us non-experts :

Background and key principles

Under Islamic principles, Sharia law (prescribed in the Koran) defines the framework within which Muslims should conduct their lives.

The overarching principle of Islamic finance and banking products is that all forms of interest are forbidden. The Islamic financial model works on the basis of risk sharing. The customer and the bank share the risk of any investment on agreed terms, and divide any profits or losses between them. In addition, investments should only support practices that are not forbidden – trades in alcohol, betting and pornography are not allowed. Moreover, an Islamic banking institution is not permitted to lend to other banks at interest.

This we knew already

But why in Britain?

How Islamic banks fit into the current UK regulatory system

The FSA operates under a single piece of legislation that applies to all sectors, the Financial Services and Markets Act 2000.

The FSA’s policy towards Islamic banks, and indeed any new or innovative financial services company, can be summed up simply as "no obstacles, no special favours". We are keen to promote a level playing field between conventional and Islamic providers. One thing we are clear about is that we are a financial, not a religious, regulator.

One of the most important issues for the FSA is that of Islamic deposits. The UK legal definition of a deposit is: “a sum of money paid on terms under which it will be repaid either on demand or in circumstances agreed by the parties". In other words, money placed on deposit must be capital certain. For a simple non-interest bearing account there is no problem. The bank safeguards the customer’s money and returns it when the terms of the account require it to do so. However with a savings account there is a potential conflict between UK law, which requires capital certainty, and Sharia law, which requires the customer to accept the risk of a loss in order to have the possibility of a return.

Islamic banks resolve this problem by offering full repayment of the investment but informing the customer how much should be repayable to comply with the risk-sharing formulation. This allows customers to choose not to accept full repayment if their religious convictions dictate otherwise.

How can Muslim or non-Muslim benefit then?

Typical Islamic products

Some of the principal Islamic banking products are:

Commodity Murabaha - Islamic banks use this product to replace conventional inter-bank deposits. It involves the sale and subsequent re-purchase of a commodity (normally a base metal which is traded on a major exchange such as the London Metal Exchange). It is structured in such a way that it is essentially similar to a loan granted by the seller to the buyer. The difference in the sale and re-purchase price earns the seller a return which is broadly equivalent to interest.

Ijara – A leasing agreement in which the bank buys and then leases an asset (for example consumer durables or a property) to its customer for a specified rental over a specified period of time. The bank may have the right to adjust the rental charge in line with changes in the cost of finance. This method can be used for home buying purposes ("Islamic mortgages"). This usually entails the customer making capital payments in addition to the rental charge. The customer’s ownership in the property increases and the bank’s decreases by a similar amount with each such payment. Once all payments have been made, ownership of the property passes to the customer.

Murabaha - A form of credit that enables customers to make purchases without taking an interest bearing loan. The bank buys the goods for the customer and re-sells them to the customer on a deferred basis, adding an agreed profit margin. The customer then pays the sale price for the goods over installments, effectively obtaining credit without paying interest.

So what do you guys think? Leave a comment.

I have found an excellent list that sums up the advantages of Foreign Exchange Market trading.

Western Capital Forex sums it up like this:

The effective utilization of the capital

The principle of the margin trade provides an opportunity to trade in the FOREX market in the volumes considerably exceeding your deposit. Traders have an opportunity of trading for profit on both up, and downturn  trends.

Thus, in order to complete a transaction it is not necessity to have the full amount of the transaction. That is, for the conclusion of a transaction you borrow the missing amount, therefore giving some leverage to the initial amount.

Opportunity to operate risks

FOREX is not only fascinating, but does bear certain risks. It is possible to come out of the game as a winner, but there is also a risk of losing money. Fortunately, modern FOREX allows traders to operate risks by means of the fundamental and technical analysis, In addition, the use of "stop loss" and "take profit" orders allows the trader to control profit and losses.

Wide range of trading tools

FOREX Market has a wide spectrum of trading opportunities: the basic currency pairs, cross-country by rates, and even exotic currencies. Traders can trade for just one day or open long-term positions if they can see the benefits and prospects of their positions

Fundamental trading opportunities

The trade in FOREX market is a game based on a macro of both fundamental economic news and trends.

Technical trading opportunities

Trends in FOREX market are usually steadier, than in other markets, and render and are ideally suitable for use with technical trading models.

No commissions ( really no commissions?)

There are no commissions; you pay only a difference between by the seller (ask) and the buyer (bid) price in the bilateral quotation.

Round the clock

The Market works round the clock, transactions are made through the Internet or by a telephone system. Traders can open or close positions at any time.

The list is  huge but I like it.

One thing I don’t understand is why there are no commissions involved. Somebody has to make money from me trading, right?

Fallout from the credit crisis is spreading down Main Street, threatening to worsen the U.S.
economic downturn.

Banks and other lenders, from the nation’s largest to those with only a few branches, say they are tightening lending standards — and not just for home loans.

The tightening could worsen an already weakened outlook for jobs and the economy. Businesses may have trouble borrowing what they need to grow, and consumers may have to cut spending as mortgage costs and credit card fees increase.

An example of a lender that has grown more cautious is Astoria Financial Corp, a Westbury, New York savings and loan with $21.7 billion of assets.

It has cut the maximum size of some home loans, and stopped residential lending in 15 of 44 U.S. states. Large housing markets such as California, Florida, Michigan and Ohio deteriorated too far, it said.

"Home sales are dropping off very significantly," Chief Operating Officer Monte Redman said. "We need to be prudent."

According to the Federal Reserve’s January survey of senior loan officers, nearly all respondents expected credit quality to weaken, or at best stay the same, in nearly every
major lending area.

excerpt from source