Foreign Exchange (FX) is For Experts – NOT Expats
Currently, there is a lot of nonsense being shared on the internet regarding expats encouraging others to buy pesos with dollars – as an investment strategy and an easy way for making a fast buck. This piece explains why this is terrible advice.
Trillions are traded on foreign currency exchanges 24/7 five days a week. FX traders are highly skilled and rely on algorithms and inputs of data from across the globe. Trading is accomplished visa sophisticated computerized systems. Anyone can buy and sell currencies, although the vast majority of trading is accomplished by brokers, dealers, banks, institutions and large multi-national companies. Again, these are sophisticated financial experts.
Like any casino, making bets on foreign currency is risky business. This is particularly true for individuals. If you want to read extensively about FX trading, this article is pretty darn good from an overview standpoint. I am not going to submerge into the details here.
At the time of this writing on Saturday April 4th 2020, the Mexican peso is trading at $24.99 to one U.S. dollar. Yes, the peso’s value has declined against the dollar over the past 30 days, primarily over concerns regarding the impact of the COVID-19 pandemic, the crash in the price of oil across the globe, and the negative forecasts for the Mexican economy.
Buying pesos with U.S. dollars as an investment strategy and/or as a way to make fast, easy money is a terribly risky business. Yet, it’s a choice. You can go to a Mexican casino and make these same sorts of bets playing roulette or a card game with your money. Of course, expats residing in Mexico typically use ATM machines in Mexico to access their U.S. dollars on deposit in U.S. Banks and/or invested in cash in brokerage accounts – and the current exchange rate makes their dollar go farther in Mexico. This is great! (Assuming you get an accurate/market exchange rate and are not paying “points” (either on the currency conversion rate and/or fees) to the bank whose ATM machine you are using).
Yet, buying pesos with dollars and stuffing them in a mattress or a Mexican bank account as a method to make easy, quick money at present assumes several things:
- You know what you’re doing.
- You have the funds to place wagers.
- The value of the peso will NOT continue to decline against the dollar.
- You can lose money.
- You can be misguided and/or misinformed/deceived.
- Inflation in Mexico will not increase.
- You are well versed in all the factors that are forecast to influence the Mexican peso/U.S. dollar valuation.
- You understand global petroleum pricing and the impact on the peso.
- You understand how the Covid-19 pandemic will impact Mexico economically.
There is also a ton of chatter on the internet about buying Mexican real estate due to the current MX peso/US dollar valuation. The chatter is “it’s a great time to buy real estate in Mexico!” Really? Of course this depends upon individual financial realities. However, using the current peso/dollar exchange rate as the primary basis for deciding to buy real estate in Mexico is – to be kind – adrenal versus cerebral.
My grandpa once said to me; “Don’t make a wager and roll the dice Bill if you don’t fully understand the rules of the game.”
When you encounter viral advice on the internet, treat it like a virus; move away from it as quickly as you can.
The DAHL Street Journal is for readers who live where we do – not – on Wall Street…
Bill Dahl is a former Senior Vice President for Bank of America in Los Angeles, CA. He currently resides in Queretaro, MX. His insightful analysis of economic issues has been published widely. He is a contributing columnist for IDN-InDepthNews and Wall Street International Magazine. He has been a contributing columnist for Mexico News Daily, Seeking Alpha, Los Angeles based Hispanic Vista, Immigration Law Weekly (NY, NY), Cascade Business News, and an Op-Ed contributor for the Los Angeles Times – among others. He holds valid U.S. Newspaper Publisher Association Press Credentials. He can be reached at https://www.BillDahl.net