HOW TO INVEST IN HARD CURRENCY (CASH) INVESTMENT:
As an investor, you should carefully consider risk-management techniques to help mitigate these risks and improve their long-term returns before deciding to invest.
* The key benefits of investing in foreign currency include:
A large and liquid market: The foreign exchange market is the largest and most liquid market in the world, with an average daily volume in excess of $5 trillion.
Diversification: The foreign exchange market offers investors a way to diversify away from potential risks associated with the U.S. dollar as an asset class.
Trading Hours: The foreign exchange market operates 24 hours a day, five days a week, which offers more trading time than most traditional equity, bond, or futures markets.
Potentially Low Costs: Most foreign exchange trading doesn’t involve paying a commission, but rather, a bid/ask spread that tends to be tighter than equities.
* The key risks of investing in foreign currency include:
High leverage: The foreign exchange market moves in very small increments, which makes high leverage, through the use of margin, a necessity, and risk for those investing directly.
High volatility: The foreign exchange market has notoriously high levels of volatility due to economic reports, central bank interventions, and other factors.
Investors should carefully consider risk-management techniques to help mitigate these risks and improve their long-term returns. In addition, investors need to keep ample capital on hand to avoid risks from using leverage when trading directly on foreign exchanges.
MODE OF INVESTING
Investing Indirectly With ETFs
Exchange-traded funds (ETFs) represent one of the easiest ways for non-currency experts to invest in foreign currency. These funds purchase and manage a portfolio of currencies on behalf of investors using tools like swaps and futures contracts.
Investors benefit because they do not have as much leverage-related risk, and the purchase itself can usually take place through a traditional stockbroker rather than a foreign exchange broker.
Investing Foreign Currency Directly
You can directly invest, buy and sell individual currencies on margin through a foreign exchange brokerage. With an initial deposit as low as $3000 to $5000, investors can buy currencies with margin levels ranging from 50:1 to more than 10,000:1. Keep in mind though, greater leverage obtained by using margin also translates to increased volatility and risk of larger losses.
Take the time to review and select a high-quality broker since the European forex market does not enjoy as stringent regulations as those of the U.S. equity markets.